2025 Annual Comprehensive Financial Report

CITY OF SHAKOPEE

NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2025

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

D. Assets, Deferred Outflows of Resources, Liabilities, Deferred Inflows of Resources and Net Position (Continued)

11. Subscription Based Information Technology Arrangements (SBITA)

The City determines if an arrangement is a SBITA at inception. SBITA's are included in Right-to-use subscription assets (SBITA assets) and SBITA liabilities in the statement of net position. SBITA assets represent the City's control of the right to use an underlying asset for the subscription term, as specified in the contract, in an exchange or exchange-like transaction. SBITA assets are recognized at the commencement date based on the initial measurement of the subscription liability, plus any payments made at, or before, the commencement of the subscription term and certain direct costs. SBITA assets are defined by the City, excluding the component unit, as assets with an initial, individual cost of more than $25,000 and terms greater than one year for SBITA assets beginning after 1/1/2025. SBITA assets are amortized in a systematic and rational manner over the shorter of the subscription term or the useful life of the underlying asset. SBITA liabilities represent the City's obligation to make lease payments arising from the subscription. SBITA liabilities are recognized at the commencement date based on the net present value of expected subscription payments over the subscription term, less any subscription incentives. Interest expense is recognized ratably over the contract term. The individual subscription contracts do not provide information about the discount rate implicit in the subscription. Therefore, the City has elected to use their incremental borrowing rate to calculate the present value of expected subscription payments. For purposes of measuring the net pension liability, deferred outflows/inflows of resources, and pension expense, information about the fiduciary net position of the Public Employees Retirement Association (PERA) and additions to/deductions from PERA's fiduciary net position have been determined on the same basis as they are reported by PERA except that PERA's fiscal year end is June 30. For this purpose, plan contributions are recognized as of employer payroll paid dates and benefit payments and refunds are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. The General fund is typically used to liquidate governmental pension liability. Under Minnesota statute 471.61, subdivision 2b, public employers must allow retirees and their dependents to continue coverage indefinitely in an employer-sponsored health care plan, under the following conditions: 1) Retirees must be receiving (or eligible to receive) an annuity from a Minnesota public pension plan, 2) Coverage must continue in a group plan until age 65, and retirees must pay no more than the group premium, and 3) Retirees are able to add dependent coverage during open enrollment period or qualifying life event prior to retirement. All premiums are funded on a pay-as-you-go basis. The liability was determined, in accordance with GASB Statement No. 75, at December 31, 2023. The General fund is typically used to liquidate governmental other postemployment benefits payable. The City has no assets accumulated in a trust that meets the criteria in GASB 75. 12. Pensions 13. Other Postemployment Benefits

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