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City of Shakopee

Communications Letter
December 31, 2015

City of Shakopee
Table of Contents

Report on Matters Identified as a Result of


the Audit of the Financial Statements

Significant Deficiency

Other Deficiencies

Required Communication

Financial Analysis

Emerging Issues

19

Report on Matters Identified as a Result of


the Audit of the Financial Statements

Honorable Mayor, Members


of the City Council and Management
City of Shakopee
Shakopee, Minnesota

In planning and performing our audit of the financial statements of the City of Shakopee,
Minnesota, as of and for the year ended December 31, 2015, in accordance with auditing
standards generally accepted in the United States of America, we considered the Citys
internal control over financial reporting (internal control) as a basis for designing auditing
procedures that are appropriate in the circumstances for the purpose of expressing our
opinion on the financial statements, but not for the purpose of expressing an opinion on the
effectiveness of the Citys internal control. Accordingly, we do not express an opinion on
the effectiveness of the Citys internal control.
Our consideration of internal control was for the limited purpose described in the preceding
paragraph and was not designed to identify all deficiencies in internal control that might be
material weaknesses or significant deficiencies and, therefore, material weaknesses or
significant deficiencies may exist that were not identified.
A deficiency in internal control exists when the design or operation of a control does not
allow management or employees, in the normal course of performing their assigned
functions, to prevent, or detect and correct, misstatements on a timely basis. A material
weakness is a deficiency, or a combination of deficiencies in internal control, such that there
is a reasonable possibility that a material misstatement of the Citys financial statements will
not be prevented, or detected and corrected on a timely basis. We did not identify any
deficiencies in internal control that we consider to be material weaknesses.
A significant deficiency is a deficiency, or a combination of deficiencies, in internal control
that is less severe than a material weakness, yet important enough to merit attention by those
charged with governance. The significant deficiency identified is stated within this letter.
During our audit, we also became aware of deficiencies in internal control other than
significant deficiencies or material weaknesses, and other matters that are opportunities for
strengthening internal controls and operating efficiency. They are described in the
accompanying letter under Other Deficiencies.
The accompanying memorandum also includes financial analysis provided as a basis for
discussion. The matters discussed herein were considered by us during our audit and they do
not modify the opinion expressed in our Independent Auditors Report dated May 23, 2016,
on such statements.
1

This communication is intended solely for the information and use of management, the City
Council, others within the City and state oversight agencies and is not intended to be and
should not be used by anyone other than these specified parties.

St. Cloud, Minnesota


May 23, 2016

City of Shakopee
Significant Deficiency

LACK OF SEGREGATION OF ACCOUNTING DUTIES


Adequate segregation of accounting duties is in place when the four areas of a transaction have been
separated: authorization, custody, recording, and reconciliation. During 2015, the City did not have
sufficient staff to segregate the duties listed above. The lack of adequate segregation of accounting
duties could adversely affect the Citys ability to initiate, record, process, and report financial data
consistent with the assertions of managements in the financial statements. Specific areas where there is a
lack of internal controls include (but is not all-inclusive):
Payroll
The Payroll Clerk processes payroll, posts payroll to the general ledger, issues direct deposits,
prepares the payroll taxes, initiates transfers for payment of payroll, prepares all W-2s, and
maintains all data files as well as the payroll program.
Cash Receipts
Deposits at City Hall The front desk personnel receives money, codes the revenue, and prepares
bank deposits. The Accounting Manager reconciles cash and posts all deposits into the general
ledger.
Deposits at Recreation Center One employee is able to receipt money and prepare the bank
deposit.
Cash Disbursements
The Accounting Clerk enters invoices, matches purchase orders to invoices, and prepares checks for
payment. The Accounting Manager reconciles cash.
Management is aware of this condition and has taken certain steps to compensate for the lack of
segregation but due to the number of staff needed to properly segregate all of the accounting duties, the
costs of obtaining desirable segregation of accounting duties often exceeds benefits which could be
derived. However, management must remain aware of this situation and should continually monitor the
accounting system, including changes that occur.

City of Shakopee
Other Deficiencies

IMPROVE ICE ARENA RECEIPTING INTERNAL CONTROL


During our audit, we analyzed the receipts collection process of the ice arena and found the process to
be decentralized from the Citys regular receipting process. Currently, the City employs an Ice Arena
Manager who collects and records funds and also maintains copies of signed ice rental contracts and a
list of payers, creating a segregation of duties incompatibility.
Areas where controls could be implemented include:
Segregate duties so that employees are not able to receipt money, prepare reconciliations, and
prepare the deposit
Have an employee independent of collecting the cash maintain and create the billing contracts to
ensure that all the contracts are being billed and the revenue is being deposited by the City
Check ice arena schedules to contracts to ensure that all ice time is being billed
To improve internal control over the ice arena receipting process and to prevent potential omissions and
errors, we recommend the City implement additional oversight procedures to ensure the accuracy and
completeness of ice arena receipts.

City of Shakopee
Required Communication

We have audited the basic financial statements of the City for the year ended December 31, 2015, and
have issued our report dated May 23, 2016. Professional standards require that we provide you with the
following information related to our audit.
OUR RESPONSIBILITY UNDER AUDITING STANDARDS GENERALLY ACCEPTED IN
THE UNITED STATES OF AMERICA AND GOVERNMENT AUDITING STANDARDS
As stated in our engagement letter, our responsibility, as described by professional standards, is to
express an opinion about whether the financial statements prepared by management with your oversight
are fairly presented, in all material respects, in conformity with accounting principles generally accepted
in the United States of America. Our audit of the financial statements does not relieve you or
management of your responsibilities.
As part of our audit, we considered the internal control of the City. Such considerations were solely for
the purpose of determining our audit procedures and not to provide any assurance concerning such
internal control.
As part of obtaining reasonable assurance about whether the financial statements are free of material
misstatement, we performed tests of the City's compliance with certain provisions of laws, regulations,
contracts, and grants. However, the objective of our tests was not to provide an opinion on compliance
with such provisions.
Our responsibility for the supplementary information accompanying the financial statements, as
described by professional standards, is to evaluate the presentation of the supplementary information in
relation to the financial statements as a whole and to report on whether the supplementary information is
fairly stated, in all material respects, in relation to the financial statements as a whole.
PLANNED SCOPE AND TIMING OF THE AUDIT
An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements; therefore, our audit involved judgment about the number of transactions to be
examined and the areas to be tested.
Our audit included obtaining an understanding of the City and its environment, including internal
control, sufficient to assess the risks of material misstatement of the financial statements and to design
the nature, timing, and extent of further audit procedures. Material misstatements may result from
(1) errors, (2) fraudulent financial reporting, (3) misappropriation of assets, or (4) violations of laws or
governmental regulations that are attributable to the City, or to acts by management or employees acting
on behalf of the City.

City of Shakopee
Required Communication

QUALITATIVE ASPECTS OF ACCOUNTING PRACTICES


Management is responsible for the selection and use of appropriate accounting policies. The significant
accounting policies used by the City are described in Note 1 to the financial statements. No new
accounting policies were adopted and the application of existing policies was not changed during the
year ended December 31, 2015. We noted no transactions entered into by the City during the year for
which there is a lack of authoritative guidance or consensus. All significant transactions have been
recognized in the financial statements in the proper period.
Accounting estimates are an integral part of the financial statements prepared by management and are
based on managements knowledge and experience about past and current events and assumptions about
future events. Certain accounting estimates are particularly sensitive because of their significance to the
financial statements and because of the possibility that future events affecting them may differ
significantly from those expected. The most sensitive estimates affecting the financial statements were:
Depreciation The City is currently depreciating its capital assets over their estimated useful lives,
as determined by management, using the straight-line method.
Expense/Expenditure Allocation The City is currently allocating certain costs among the programs
and supporting services benefited. The costs are allocated based on managements estimates.
Net Other Post Employment Benefits (OPEB) Obligation This liability is based on an actuarial
study using estimates of future obligations of the City for post-employment benefits.
Net Pension Liability, Deferred Outflows of Resources Relating to Pension Activity, and Deferred
Inflows of Resources relating to Pension Activity These balances are based on an allocation by the
pension plans using estimates based on contributions.
The financial statement disclosures are neutral, consistent, and clear.
DIFFICULTIES ENCOUNTERED IN PERFORMING THE AUDIT
We encountered no significant difficulties in dealing with management in performing and completing
our audit.
CORRECTED AND UNCORRECTED MISSTATEMENTS
Professional standards require us to accumulate all misstatements identified during the audit, other than
those that are clearly trivial, and communicate them to the appropriate level of management.
Management did not identify and we did not notify them of any uncorrected financial statement
misstatements.
In addition, none of the misstatements detected as a result of audit procedures and corrected by
management were material, either individually or in the aggregate, to the financial statements taken as a
whole.
6

City of Shakopee
Required Communication

DISAGREEMENTS WITH MANAGEMENT


For purposes of this letter, a disagreement with management is a financial accounting, reporting, or
auditing matter, whether or not resolved to our satisfaction that could be significant to the financial
statements or the auditors report. We are pleased to report that no such disagreements arose during the
course of our audit.
MANAGEMENT REPRESENTATIONS
We requested certain representations from management that are included in the management
representation letter.
MANAGEMENT CONSULTATIONS WITH OTHER ACCOUNTANTS
In some cases, management may decide to consult with other accountants about auditing and accounting
matters, similar to obtaining a second opinion on certain situations. If a consultation involves
application of an accounting principle to the Citys financial statements or a determination of the type of
auditors opinion that may be expressed on those statements, our professional standards require the
consulting accountant to check with us to determine that the consultant has all the relevant facts. To our
knowledge, there were no such consultations with other accountants.
OTHER AUDIT FINDINGS OR ISSUES
We generally discuss a variety of matters, including the application of accounting principles and
auditing standards, with management each year prior to retention as the Citys auditors. However, these
discussions occurred in the normal course of our professional relationship and our responses were not a
condition to our retention.
OTHER MATTERS
With respect to the supplementary information accompanying the financial statements, we made certain
inquiries of management and evaluated the form, content and methods of preparing the information to
determine that the information complies with accounting principles generally accepted in the United
States of America, the method of preparing it has not changed from the prior period, and the information
is appropriate and complete in relation to our audit of the financial statements. We compared and
reconciled the supplementary information to the underlying accounting records used to prepare the
financial statements or to the financial statements themselves.

City of Shakopee
Financial Analysis
The following pages provide graphic representation of select data pertaining to the financial position and
operations of the City for the past five years. Our analysis of each graph is presented to provide a basis
for discussion of past performance.
GENERAL FUND OPERATIONS OF THE CITY
For the year ended December 31, 2015, revenues and transfers in exceeded expenditures and transfers
out. Total fund balance in the General Fund remained stable, increasing $2,064, or 0.02%, in 2015 to
$9,840,110.
General Fund
$25,000,000

$21,000,000

$17,000,000

$13,000,000

$9,000,000

$5,000,000

$1,000,000

2011
$20,956,396
18,674,938
9,304,194

Revenues
Expenditures
Fund Balance

2012
$21,770,348
18,694,101
9,522,841

2013
$22,869,399
19,539,401
9,092,989

2014
$23,794,189
20,506,749
9,838,046

2015
$24,331,286
21,063,756
9,840,110

General Fund Revenues/Expenditures


Per Capita
$700

$600

$495

$524

$513

$494

$616

$608

$600

$575

$556

$533

$500

$400

$300

$200

$100

$2011

2012

2013
Revenues

2014

2015

Expenditures

City of Shakopee
Financial Analysis
GENERAL FUND OPERATIONS OF THE CITY (CONTINUED)
Unassigned Fund Balance as a Percent of Expenditures
70%

60%

50%
49%

51%
48%
47%

46%
40%

30%

20%

10%

0%
2011

2012

2013

2014

2015

The Citys target General Fund balance is an unassigned level between 40% (minimum) and 45% of
current year budgeted expenditures. This level is to provide working capital for cash flow, expected
decline in revenues and unforeseen expenditures such as natural disasters. Replenishing the Fund
balance when it falls below the target level shall be accomplished by interfund transfers or budgeting for
expenditures and other uses to be less than revenues or other sources over a period not to exceed three
years. For the year ended December 31, 2015, the City maintained an unassigned fund balance of 47%
of current year expenditures. The City also evaluates the unassigned fund balance as a percentage of the
next years budgeted expenditures. Based on the 2016 budget the City has an unassigned fund balance of
43%.

City of Shakopee
Financial Analysis
GENERAL FUND REVENUES
The Citys revenue in the General Fund has increased each of the last five years. During 2015, revenue
in the General Fund exceeded the prior year revenue by $537,097, increasing from $23,794,189 to
$24,331,286. Property taxes increased due to an increase in the General Fund levy of approximately
$345,000; as well as additional lodging tax revenue, this increase was offset due to an increase in tax
petitions during the year. Intergovernmental revenue increased $165,000 as a result of additional state
funding for road maintenance. Licenses and permits increased $489,000 due to increased development
within the city. Fines and forfeitures decreased $384,000 due to changing the Scott Joint Prosecution
Services in 2015. Charges for services increased $158,000 with increased police contracted services and
engineering working on additional projects. Miscellaneous revenues were consistent with the prior year.
During 2015, property taxes represented 66% of the total General Fund revenues. Charges for services
represented the second largest component at 18%.

General Fund Revenues


$25,000,000
$22,000,000
$19,000,000
$16,000,000
$13,000,000
$10,000,000
$7,000,000
$4,000,000
$1,000,000
Miscellaneous
Charges for Services
Fines and Forfeitures
Licenses and Permits
Intergovernmental
Taxes and Assessments

2011
$397,477
3,879,113
357,249
1,225,560
796,076
14,300,921

2012
$359,323
4,035,921
368,167
1,229,184
991,445
14,786,308

2013
$132,202
4,304,786
348,262
1,443,885
1,042,127
15,598,137

2014
$333,177
4,294,637
391,500
1,534,165
1,191,127
16,049,583

2015
$319,491
4,452,415
7,093
2,023,436
1,356,733
16,172,118

10

City of Shakopee
Financial Analysis
GENERAL FUND EXPENDITURES
In 2015, total General Fund expenditures increased $557,007, or 2.7%, from $20,506,749 in 2014 to
$21,063,756 in 2015. General government increased approximately $368,000 as a result of step and lane
increases for employees, additional lodging tax expenditures, the purchase of election equipment and
increased professional services. Public works increased $200,000 as a result of additional staff, step and
lane increases, and additional costs incurred for road overlay projects. Public safety and recreation were
consistent with prior year amounts.
2015 General Fund Expenditures

Recreation
19%

General Government
18%

Public Works
14%

Public Safety
49%

2014 General Fund Expenditures


Recreation
19%

General Government
17%

Public Works
14%

Public Safety
50%

11

City of Shakopee
Financial Analysis
GENERAL FUND OPERATIONS OF THE CITY
For the 2015 operating year, the City Council provided a budget that would decrease the General Fund
balance by $412,274. Revenues exceeded expectations and expenditures were 3.8% under budget. At
year-end, revenues and transfers in exceeded expenditures and transfers out by $2,064.
Budget

Actual

Revenues
Taxes and assessments
Licenses and permits
Intergovernmental
Charges for services
Fines and forfeitures
Miscellaneous revenues

$ 16,174,500
1,348,300
1,028,393
4,050,700
251,000
252,000

$ 16,172,118
2,023,436
1,356,733
4,452,415
7,093
319,491

Total revenues

$ 23,104,893

$ 24,331,286

$ 1,226,393

$ 4,448,225
9,920,344
3,238,343
4,260,255

3,883,112
10,227,291
3,036,284
3,917,069

(565,113)
306,947
(202,059)
(343,186)

$ 21,867,167

$ 21,063,756

(803,411)

Expenditures
General government
Public safety
Public works
Parks and recreation
Total expenditures
Transfers in
Transfers out
Total other financing
Sources (uses)

Change in fund balance

Variance
(2,382)
675,136
328,340
401,715
(243,907)
67,491

250,000 $
250,000 $
(1,900,000)
(3,515,466)
(1,615,466)
(1,650,000)
(412,274) $

(3,265,466)
2,064

(1,615,466)
$

414,338

During 2015, revenue in the General Fund exceeded the budget by $1,226,393, or 5.3%. Significant
revenue budget variances are a result of conservative budgeting for revenues that can fluctuate during
the year, such as licenses, permits and engineering fees, and additional construction aid not anticipated.
Fines and forfeitures were under budget due to fewer seizures and sales during the year.
All functions of the expenditures, except public safety, were under budget. General government was
under budget due to positions that were vacant during the year and to increase reserves. Public safety
was over budget due to a change in the allocation of liability and workers compensation insurance to be
based on actual charges. Public works was under budget due to conservative spending, less overtime
than anticipated and needing less sand and salt than budgeted. Parks and recreation was under budget
due to projects that were budgeted and not completed and conservative spending.
12

City of Shakopee
Financial Analysis
ENTERPRISE FUNDS
The City has three enterprise funds. The following charts compare the segment information and net
position of the Sewer and Storm Drainage enterprise funds for the last five years.
Sewer Fund
$5,000,000

$4,000,000

$3,000,000

$2,000,000

$1,000,000

$-

$(1,000,000)

$(2,000,000)
Operating Revenues
Operating Expenses
Operating Loss
Change in Net Position

2011
$2,936,144
3,836,202
(900,058)
(524,858)

2012
$3,730,226
3,953,269
(223,043)
(14,003)

2013
$2,973,474
4,122,406
(1,148,932)
(1,162,542)

2014
$2,872,662
3,734,691
(862,029)
(201,729)

2015
$2,845,439
3,846,338
(1,000,899)
(1,425,120)

2014
$1,066,118
1,935,464
(869,346)
101,746

2015
$1,102,728
1,748,461
(645,733)
363,481

Storm Drainage Fund


$2,000,000

$1,500,000

$1,000,000

$500,000

$-

$(500,000)

$(1,000,000)
Service Charges
Operating Expenses
Operating Loss
Change in Net Position

2011
$995,855
1,411,271
(415,416)
55,008

2012
$1,037,427
1,472,361
(434,934)
431,658

2013
$1,047,160
1,604,937
(557,777)
(3,004)

During 2015, the Sewer and Storm Drainage Funds both had operating losses. The Funds have reported
an operating loss for the past five years. This is primarily due to the depreciation expense in both Funds.
13

City of Shakopee
Financial Analysis
TAX LEVY, CAPACITY, AND RATES
The 2014 and 2015 levy includes the General Fund and debt service levies. The tax levy is then reduced
by fiscal disparity credit that is received in the form of state aid. Disparity aid is reported as tax revenue
and reduces the amount of property tax revenue levied upon the City.

Taxable Tax Capacity and Certified Levy


$40,000,000

$35,000,000

$30,000,000

$25,000,000

$20,000,000

$15,000,000

$10,000,000

$5,000,000

$Taxable Tax Capacity


Certified Levy

2011
$37,680,587
14,717,367

2012
$35,402,744
14,717,435

2013
$32,445,035
15,333,211

2014
$34,210,957
16,137,178

2015
$38,705,002
16,573,266

* Tax capacity values and levy obtained from the League of Minnesota Cities.

14

City of Shakopee
Financial Analysis
TAX LEVY, CAPACITY, AND RATES (CONTINUED)

Tax Capacity Rate


55
48.79

50
45

48.75
46.89

46.26
42.53
46.14
43.45

40
40.03
35

46.01
43.37

42.00

41.44
37.86

36.66
34.73

30
25
20
15
10
5
0
2011

2012
City Rate

2013
State Average

2014

2015

Metro City Average

Tax rates obtained from the League of Minnesota Cities.

15

City of Shakopee
Financial Analysis
DEBT SERVICE
The following charts illustrate debt service requirements, including principal and interest through 2025
and bonded debt for the last five years. In 2016, the City issued $29,500,000 in G.O. Tax Abatement
Bonds, Series 2016A, which will impact these charts in future years.
Debt Service Schedule
$2,000,000
$1,800,000
$1,600,000

$1,400,000
$1,200,000
$1,000,000
$800,000
$600,000

$400,000
$200,000
$2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

Bonded General Obligation Debt


$20,000,000
$18,000,000

$16,990,000
$16,145,000

$19,060,000

$16,000,000
$14,000,000

$4,625,946

$13,830,000

$9,574,198
$8,678,680

$12,000,000

$6,620,389

$10,000,000

$8,215,000
$8,000,000

$11,519,054
$3,085,157

$9,485,802

$6,000,000

$8,311,320
$7,209,611

$4,000,000

$5,129,843

$2,000,000
$2011

2012
Gross Bonded Debt

2013
Debt Service Fund Balance

2014

2015

Net Bonded Debt

16

City of Shakopee
Financial Analysis
ADDITIONAL INFORMATION
The following information shows 2014 per capita data for the City in comparison to three other cities
similar in size and/or operations (Cities of Savage, Eden Prairie, and Chaska [the Cities]). This
information is based on the population estimates listed below. Information for 2015 is not yet available.
When analyzing this information, keep in mind that each of the Cities is unique in its operations.

Shakopee
Savage
Eden Prairie
Chaska

Population
39,144
29,047
62,729
24,811

Employees
183
153
204
187

The graph below shows the total General Fund revenues and expenditures per capita, as well as General
Fund tax revenues per capita for the various Cities.

2014 General Fund


Revenues and Expenditures Per Capita
$800
$700
$600
$500
$400
$300
$200

$100
$0
Shakopee
Savage
Eden Prairie
Chaska

Total Expenditures
$524
422
649
479

Total Revenues
$608
451
668
468

Tax Revenues
$410
357
477
149

Population, revenues and expenditures obtained from 2014 Comprehensive Annual Financial
Report (CAFR) for all Cities

17

City of Shakopee
Financial Analysis
ADDITIONAL INFORMATION (CONTINUED)
The following graphs show the General Fund expenditures by function per capita for the various Cities.
2014 General Fund
Expenditures Per Capita
$300

$250

$200

$150

$100

$50

$0
Shakopee
Savage
Eden Prairie
Chaska

General Government
$90
74
63
170

Public Safety
$260
198
295
182

Public Works
$72
79
91
106

Recreation
$102
48
164
20

2014 Per Capita Information


Governmental Funds
$3,000

$2,500

$2,000

$1,500

$1,000

$500

$0
Shakopee
Savage
Eden Prairie
Chaska

Outstanding Debt*
$353
1,850
807
1,281

Total Revenues*
$826
968
956
1,016

Tax Revenues*
$424
559
573
432

Capital Outlay*
$185
373
335
297

Data obtained from 2014 Comprehensive Annual Financial Report (CAFR) for all Cities

18

City of Shakopee
Emerging Issues

Executive Summary
The following is an executive summary of financial and business related updates to assist you in staying
current on emerging issues in accounting and finance. This summary will give you a preview of the new
standards that have been recently issued and what is on the horizon for the near future. The most recent
and significant updates include:

Accounting Standard Update Accounting and Financial Reporting for Postemployment


Benefits Other Than Pensions Governmental Accounting Standards Board (GASB) has issued
GASB statement 75 relating to accounting and financial reporting for postemployment benefits other
than pensions. The new statement requires governments in all types of OPEB plans to present more
extensive note disclosures and required supplementary information (RSI) about their OPEB
liabilities.

The following are extensive summaries of each of the current updates. As your continued business
partner, we are committed to keeping you informed of new and emerging issues. We are happy to
discuss these issues with you further and their applicability to your City.
ACCOUNTING STANDARD UPDATE GASB STATEMENT NO. 75 - ACCOUNTING AND
FINANCIAL REPORTING FOR POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS
The primary objective of this statement is to improve accounting and financial reporting by state and
local governments for postemployment benefits other than pensions (other postemployment benefits or
OPEB). It also improves information provided by state and local governmental employers about
financial support for OPEB that is provided by other entities. This statement results from a
comprehensive review of the effectiveness of existing standards of accounting and financial reporting
for all postemployment benefits (pensions and OPEB) with regard to providing decision-useful
information, supporting assessments of accountability and interperiod equity, and creating additional
transparency.
This statement 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, for OPEB. Statement No.
74, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, establishes new
accounting and financial reporting requirements for OPEB plans.
GASB Statement 75 requires governments to report a liability on the face of the financial statements for
the OPEB that they provide:

Governments that are responsible only for OPEB liabilities related to their own employees and
that provide OPEB through a defined benefit OPEB plan administered through a trust that meets
specified criteria will report a net OPEB liabilitythe difference between the total OPEB
liability and assets accumulated in the trust and restricted to making benefit payments.

19

City of Shakopee
Emerging Issues
ACCOUNTING STANDARD UPDATE GASB STATEMENT NO. 75 - ACCOUNTING AND
FINANCIAL REPORTING FOR POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS
(CONTINUED)

Governments that participate in a cost-sharing OPEB plan that is administered through a trust
that meets the specified criteria will report a liability equal to their proportionate share of the
collective OPEB liability for all entities participating in the cost-sharing plan.

Governments that do not provide OPEB through a trust that meets specified criteria will report
the total OPEB liability related to their employees.

GASB Statement 75 carries forward from Statement 45 the option to use a specified alternative
measurement method in place of an actuarial valuation for purposes of determining the total OPEB
liability for benefits provided through OPEB plans in which there are fewer than 100 plan members
(active and inactive). This option was retained in order to reduce costs for smaller governments.
GASB Statement 75 requires governments in all types of OPEB plans to present more extensive note
disclosures and required supplementary information (RSI) about their OPEB liabilities. Among the new
note disclosures is a description of the effect on the reported OPEB liability of using a discount rate and
a healthcare cost trend rate that are one percentage point higher and one percentage point lower than
assumed by the government. The new RSI includes a schedule showing the causes of increases and
decreases in the OPEB liability and a schedule comparing a government's actual OPEB contributions to
its contribution requirements.
Information provided above was obtained from www.gasb.org.

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