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NOTE 16 — COMMITMENTS AND CONTINGENCIES A. Commitments for Construction At December 31, 2011, the City is committed to various construction contracts for the improvement of city property. The City's remaining commitment under these contracts is $778,616. The City has resources available to cover these commitments. B. Federal and State Revenue Amounts received or receivable from federal and state agencies are subject to agency audit and adjustment. Any disallowed claims, including amounts already collected, may constitute a liability of the applicable funds. The amount, if any, of claims which may be disallowed by the grantor agencies cannot be determined at this time, although the City expects such amounts, if any, to be immaterial. C. Legal Claims The City has the usual and customary type of miscellaneous legal claims pending at year -end. Although the outcome of these lawsuits is not presently determinable, the City's management believes that the City will not incur any material monetary loss resulting from these claims. No loss has been recorded on the City's financial statements relating to these claims. The City's tax increment districts are subject to review by the state of Minnesota Office of the State Auditor (OSA). Any disallowed claims or misuse of tax increments could become a liability of the applicable fund. Management has indicated that they are not aware of any instances of noncompliance which would have a material effect on the financial statements. NOTE 17 — OPERATING LEASE The City is the lessor of an operating lease. In February 2010, the City of Ramsey entered into a five -year agreement to lease approximately 2200 square feet of office space on the ground floor of the Ramsey Municipal Center to Anoka County for the operation of a license center. The lease is due to terminate on June 30, 2015. The cost of the leased spaced is included in the total municipal center building cost of $12,856,588, of which $1,285,448 has been depreciated to date. These amounts are recorded in the City's capital assets. The City of Ramsey collected $42,735 in lease revenue for the fiscal year ended December 31, 2011. The following is an estimate of the future lease payments: Year Ending December 31, Lease Payments 2012 2013 2014 2015 Total Lease payments may increase each year based on the increase in the Consumer Price Index — U.S. City Averages for ALL Urban Consumers as published by the Bureau of Labor Statistics of the United States Department of Labor for Urban Wage Earners and Clerical Workers for All Items (CPI -W). 85 43,589 44,461 45,350 46,257 $ 179,657