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NOTE 1— SIGNIFICANT ACCOUNTING POLICIES A. Organization The City operates under Home Rule Charter City form of government as defined in the State of Minnesota Statutes. Under this plan, the government of the City is run by a council composed of an elected mayor and four elected councilmembers. The Council exercises legislative authority and determines all matters of policy. The accounting policies of the City conform to accounting principles generally accepted in the United States of America as applicable to governmental units. B. Reporting Entity As required by accounting principles generally accepted in the United States of America, these financial statements include the City of Ramsey (the primary government) and its component units. Component units are legally separate entities for which the primary government is financially accountable, or for which the exclusion of the component unit would render the financial statements of the primary government misleading. The criteria used to determine if the primary government is financially accountable for a component unit include whether or not the primary government appoints the voting majority of the potential component unit's board, is able to impose its will on the potential component unit, is in a relationship of financial benefit or burden with the potential component unit, or is fiscally depended upon by the potential component unit. Based on these criteria, the Economic Development Authority (EDA) of Ramsey is included as a component unit of the City. Because the EDA's five- member board is made up of Ramsey's Mayor and councilmembers, its financial data has been blended with that of the City (i.e., reported as though its funds were funds of the City). The City has included the activities within the Economic Development Authority — Special Revenue Fund. C. Jointly Governed Organization CITY OF RAMSEY Notes to Financial Statements December 31, 2002 The City is a member of Local Governmental Information Systems (LOGIS), a consortium of Minnesota municipalities that provides data processing services and support to its members. LOGIS is a legally separate entity that is financially independent of the City. Further, the City does not appoint a voting majority of LOGIS' Board of Directors. Therefore, it has not been incorporated into the City's reporting entity. During the 2002 fiscal year, the City of Ramsey paid LOGIS approximately $104,995 for services provided.