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<br />NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) <br /> <br />P. Restricted Assets <br /> <br />Restricted assets are cash and cash equivalents and the related interest receivable whose use is limited by <br />legal requirements such as a bond indenture. Restricted assets are reported only in the city-wide financial <br />statements. In the fund financial statements these assets have been reported as "cash and investments <br />held by trustee" and the interest receivable is included within "accounts and interest receivable". <br /> <br />Q. Budgets and Budgetary Accounting <br /> <br />Each fall the City Council adopts a General Fund budget for the following fiscal year beginning <br />January I. The City has established budgetary control at the function level. Budget appropriations lapse <br />at year-end. In addition, an annual budget is legally adopted for the Economic Development Authority <br />and the Housing and Redevelopment Authority (HRA) each are non major special revenue funds. <br /> <br />Budget amounts are presented on a modified accrual basis of accounting. The City Council budget <br />revisions decreased General Fund appropriations by $1,126,529. This was a result ofa significant decline <br />in expected revenues from building activity within the City due to a downturn in the building economy. <br />Encumbrance accounting is not used and there were no significant purchase commitments outstanding at <br />year-end. <br /> <br />The government's department heads may make transfers of appropriations within a function. Transfers of <br />appropriations between functions require the approval of the council. All the appropriations for the <br />Housing and Redevelopment Authority are approved by their governing board. The Economic <br />Development Authority budget is recommended by their board and fmal approval comes from City <br />Council. <br /> <br />In the General Fund, total actual expenditures exceeded appropriations in the culture and recreation <br />function by $2,103. In addition, capital outlay exceeded appropriations by $10,000. These over <br />expenditures were funded by an increase in actual investment earnings. <br /> <br />R. Statement of Cash Flows <br /> <br />For purposes ofthe Statement of Cash Flows, the City considers all highly liquid debt instruments with an <br />original maturity from the time of purchase by the City of three months or less to be cash equivalents. <br />The Proprietary Funds' portion in the city-wide cash and investment management pool is considered to be <br />cash equivalent. <br /> <br />S. Self-Insurance Plan and Risk Management <br /> <br />The City is exposed to various risks of loss related to torts: theft of, damage to, and destruction of assets; <br />errors and omissions; and natural disasters. The City participates in the League of Minnesota Cities <br />Insurance Trust (LMCIT), a public entity risk pool for i ts general property and casualty, workers' <br />compensation, and other miscellaneous insurance coverages. LMCIT operates as a common risk <br />management and insurance program for a large number of cities in Minnesota. The City pays an annual <br />premium to LMCIT for insurance coverage. The LMCIT agreement provides that the trust will be <br />self-sustaining through member premiums and will reinsure through commercial companies for claims in <br />excess of certain limits. <br /> <br />The City has elected higher deductibles through LMCIT in order to keep premiums at a minimum. To <br />supplement the commercial coverages, the City established the Self-Insurance Internal Service Fund. <br />This fund is funded primarily through dividend paybacks from LMCIT. Expenditures from this fund <br />consist solely of payments of those insurance related costs that are below the individual and/or <br /> <br />-34- <br />