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HomeMy WebLinkAbout1996-05-29 96-247 ORDERCOUNCIL ACTION Date: 5-29-96 Item No -IL-2 47 Item/Subject: ORDER, Adopting Financial Policy Titled "Designated and Undesignated Fund Balances Responaible Department: City Manager/Finance Cammsntary: Over the past five years, we have worked diligently to Improve the City's overall financial position, particularly our undesignated fwd balance and a number of our key r--pazticulazly our workers' compensation reserve. Throughout this period, individual elements of our reserves and balances have been separately addressed. This effort has paid off. Our fund balance is now at 7.88 of annual expenditures less debt s and workers' compensation liabilities e fully funded. Given this progress, now is an appropriate time to adopt an overall policy on our major reserves and fund balance. Such a policy is attached for your review. In general,. this policy outlines the purpose of each reserve, how the reserve is o n be funded, the authority to n withdraw from and the amounts which should be carried in these reserves or limits on reserve totals. As of 6-30-95, the city's undesignated fund balance was $4,081,936. Major designated rBB red by this policy totaled alightly lees than $3.5 million. Theeprea presence of this level of fund balance and designated reserves puts the City i a position of greater financial flexibility. By monitoring actual x and balances and measuring these amounts against City needs and requirements, we can now focus our attention on the management of these r and balances and the use, where appropriate, of these resources to address pressing needs. The attached policy is intended to provide Council guidance to staff to support appropriate. [ management and to guide, when adequate, the uses of these reserves. BThispolicy has been reviewed by key financial staff includingour Finance Director, Ron Heller. It has also been reviewed by the Finance Committee which recommended several changes which have been incorporated. The Committee has recommended your approval. Manager's Casements: Associated Infornationi%" O&dy, QAI�l Budget Approval: FIX CE DI R legal Approval: Vw` rr c r ntroduced For Passage _ First Reading paga_of_ Referral 96-24] M gto Council« Soucy May 29. 1996 _ryrypp CITY OF BANGOR QITLE.) VIIC�IPTt _.___.__. Adopting. Financial -Policy _Titled...."Designated and Undesiunated Fund Balance" BY City Coauelt of the City ofBau . THAT the attached policy titled "Designated and Undesignated Fund Balance" is hereby adapted and shall supercede Council Orders 85-219 and 86-244 in their entirety. IN CITY COUNCIL May 29, 1996 Paeeed CITY CL 96-26] ORDER Title, Adopting Financial Policy Titled 'Designated and Undesignated Fund Balance' ..................... 4................ Am geed to Councilnun_ 96-247 ATTACIDfENT A UNRESERVEDUNDESIGNATED FUND BALANCE SUFFICIENCY CALCULATION Fiscal Year Ended June 30, 1995 General Fund ExpendituresfUses(Scholule A-2) General govenwent $3,243,405 Public safety $9,233,995 Health, welfare and recreation $3,425,387 Public buildings and services $6,720,880 Other agencies $1,999,580 Education $27,999,220 Otherappropriations $1,791,520 Other uses, cross $1,116,647 Gross expenditures and uses $55,530,634 General Fund Debt Service (Table 5) $3,444,057 Net expenditures and uses $52,086$77 Indicated Unreserved/Undesignated Fund Balance @ 7.50% $3,906,493 Actual UnreservedNodesigusated Fund Balance (SaeduleA-2) $4,081,936 Actual Unreserved/Undesignated Fund Balance as Percent of Net Expenditures and Uses 7.84 Over (under) funded status $175,443 1.0 96-24] DESIGNATED AND UNDESIGNATED FUND BALANCE The purpose of this policy is to establish and provide for the sound financial management of the City's various designated reserves and to establish procedures for implementing the City Charter's provisions regarding undesignated fund balance. 2.1 Definition. The City's undesignated fund balhnce as reported annually in our Financial Report represents potentially supplemental financial sources to the City which are available for subsequent expenditures. These are funds which have generally accrued through receipt of revenues in excess of those anticipated within a fiscal year as well as annual operating appropriations which have not been expended. 2.2 Purpose. The undesignated fund balance serves a number of stabilizing purposes. It represents a savings account or my day fund" which is available for unforeseen emergencies, provides a cash flow cushion to offset the need for borrowing in anticipation of tax receipts, and provides evidence to the City's bond holders and bond rating agencies of financial stability and credit worthiness. 2.3 Charter Requirements. Article VI, Section 16 0£ the City Charter states: "The City Council shall target an undesignated fund balance of no more than 104 0£ the operating budget, excluding debt fox the General Fund. The minimum target balance shall be established at 5% of the last year's expenditures lees debt service. - 2.4 Policy. It is the policy of the City to maintain an undesignated fund balance approximating 7.5% of operating expenditures. 2.5 Computation of Fund Balance. on an annual basis upon receipt of the audit for the prior fiscal year, the Finance Director shall calculate the Percentage of General Fund expenditures less debt service represented by the undesignated fund balance. This shall be calculated as follows: General Fund Expenditures/uses shall be taken from Schedule A-2. Other financing sources (uses) shall be computed on a groes basis. General Fund 96-247 Debt Service from Table 5 shall be deducted from total expenditures. Thenrved/undesignated fund balance from Schedule A-2 shall be divided by the total general Fund expenditures/uses less General Fund Debt Service. An example of this computation for FT95 can be found as Attachment A to this policy. 2.6 Transfer or Appropriation of Undesignated Fund Balance. The City Council may, by Order, transfer amounts from the City's undesignated fund balance to any designated reserve. Funds may also be authorised for expenditure from undesignated fund balance through Council appropriation. 2.7 Priority Uses for Fund Balance Surplus. Any surplus food balance may be used for the purposes set forth below: 1. To increase designated reserves set aside to offset established or anticipated liabilities of the general Fund where existing reserves, if any, are insufficient. 2. To increase the designated reserve for improvements established below. 3. To increase other established capital reserves where such reserves may be sufficient to meet their purposes, as set forth below. 4. To Increase the City's appropriated contingency account to address unanticipated current year needs. In general, undesignated fund balance should not be used to fund any portion of the on-going and routine year to year operating -expenditures of the City. It should be used primarily to insure adequate designated reserves, to respond to unforeseen emergencies, and to provide overall financial stability. 3.0 Desiccated There are hereby established the following designated reserves: 1. Improvement Reserve 2. workers' Compensation Reserve 3. Self Insurance Reserve 4. Pooled Equipment Reserve 5. Fire Equipment Reserve 96-247 6. Bus Equipment Reserve 7. Enterprise Fund Reserve R. Credit Reserve. 4.0 Improvement Reserve. 4.1 Purpose. The Improvement Reserve is established to provide a potential source of funding for the following purposes, 1. The purchase of capital assets; 2. Maintenance of City assets such as buildings, made, and other general fund infrastructure; 3. Funding projects designed to reduce future year expenditures by eMancing operating efficiency or reducing costs; 4. Providing a potential source of funding for capital projects which otherwise might require the issuance of debt. 4.2 Funding. The Improvement Reserve may be funded by direct annual appropriation in the City's operating budget, transfers from undesignated fund balance or ether designated reserves, appropriation of unanticipated revenuesreceived during any fiscal year, or transfers of unused or unneeded existing appropriations within the City's operating budget. 4.3 Authority to Use and Withdraw. The City Council moat authorize the expenditure of these funds either as an element of the annual operating budget or through a separate appropriation resolve. Funds may be transferred from this reserve to other designated reserves o released to undesignated fund balance by Council Order. 4.4 Amounts and Limits. No limitations are placed on the amount which may be carried in this reserve. 5.0 &grkers• Comaensation Reserve 5.1 Purpose. The purpose of the Workers' Compensation Reserve is to provide for payment of workers' compensation liabilities arising from existing or anticipated workers' compensation claims for which adequate current year funding or insurance reimbursements are rot available. 5.2 Funding. The workers' Compensation Reserve may be funded by direct annual appropriation in the City's operating budget and transfers from undesignated fund balance or other designated reserves. In addition, any unexpended balance in 96-247 the annual workers' compensation operating budget and any revenues over and above those anticipated In the annual budget shall be placed in this reserve, 5.3 Authority to Use and Withdraw. Amounts may be expended from this reserve for payment o settlement of current or prior year workers' compensation claims where the annual appropriation is sufficient. Approval of such payments and settlements shall be by order of the City Council. 5.4 Amounts and Limits. The Workers' Compensation Reserve should generally be maintained at a level sufficient, in conjunction with annual appropriations for this purpose, to fund current and prior liabilities and expenses associated with the City's workers' compensation system as identified through the annual actuarial analysis of the City's self-insured workers' compensation program. On an annual basis, upon receipt of the actuarial analysis, the Finance Director shall review the status of this reserve and determine the appropriate amount to be maintained in it. The City Wenger may recommend to the Council that any excess amounts be used for other purposes in accordance with the following priorities: 1. Release to undesignated fund balance when the fund balance is below 7.58 of expenditures as outlined in Section 2.0 above. 2. Where the undesignated fund balance isat or above 7.58, for the purposes outlined in Section 2.7 above. 6.1 Purpose. The self-insurance reserve is Intended to provide a source of funds to protect the City against uninsured losses and to cover the cost of insurance deductibles. 6.2 Funding. The self-insurance reserve may be funded by direct annual appropriation in the City's operating budget and transfers from undesignated fund balance or other designated reserves. In addition, any subsequent recoveries from third parties for uninsured losses shall be used to reimburse this reserve for expenditures made from it for the loss for which the recovery has been made. 96-24] 6.3 Authority to Use and Withdraw. Amounts up to $6,000 may be expended from this reserve upon approval of the Finance Committee of the Council. Larger amounts must be approved by Order of the City Council. 6.4 Amounts and Limits. On an annual basis, the Finance Director shall determine the appropriate funding which should be available in this reserve taking into account the following factors, 1. The existing deductible amounts included in the City's various insurance policies. 2. The recent and expected history of uninsured losses experienced by the City. Should the Finance Director determine that a excess exists in this reserve, that excess may be used for other purposes accordance with the principles outlined in Section 5.4.1 and 5.4.2 above. 7.1 Purpose. The pooled equipment reserve is designed to help support the regular replacement of vehicles and equipment maintained by the City's Centralized Motor Pool. In addition, this reserve may be used to replace any vehicles and equipment subjected to an uninsured lose. 7.2 Funding. The pooled equipment reserve may be funded by direct annual appropriation in the City's operating budget and through transfers from undesignated fund balance orother designated reserves. In addition, the proceeds from the sale of surplus motor pool owned vehicles and equipment shall be placed in this reserve as shall any excess revenues or unused appropriations attributable to the annual operation of the city's Motor Pool. 7.3 Authority to Use. The City Council must authorize the use of this reserve through an appropriation resolve. 7.4 Amounts and Limits. The pooled equipment reserve shall not exceed 10% of the estimated current value replacement coat of the vehicles and equipment owned and maintained by the motor pool. Any excess may be used for other purposes in accordance with the principles outlined in Section 5.4.1 and 5.4.2 above. 96-247 8.8 Fire Equipment Reserve 8.1 Purpose. The Fire Equipment Reserve is designed to allow for replacement of fire vehicles and equipment and for the major renovation or repair of existing equipment. 8.2 Funding. The Fite Equipment Reserve may be funded by direct annual appropriation in the City's operating budget and through transfers from undesignated fwd balance or other reserves. Proceeds from the sale of surplus fire equipment shall be placed in this reserve. 8.3 Authority to Use. The City Council moat authorize the use of this reserve through an appropriation resolve. 8.4 Amounts and Limits. The fire equipment reserve Shall not exceed the replacement value of the moat expensive piece of equipment owned and maintained by the Fire Department. Any excess may be used for other purposes in accordance with the principles outlined in Section 5.4.1 and 5.4.2 above. 9.0 BUs sgyiamnnt Reserve 9.1 Purpose. The bus equipment reserve is designed to allow for the replacement of buses, major repairs or rehabilitation of buses, or for other capital seta required for the operation of the City's Bus system. 9.2 Funding. The bus equipment reserve may be funded by direct annual appropriation in the City's operating budget, and by transfers from the undesignated fund balance or other reserve. Proceeds from the sale of surplus buses or capital assets of the bus system shall be placed in this reserve. 9.3 Authority to Use. The City Council most authorize the use of this reserve through an appropriation resolve. 9.4 Amounts and Limits. The bus equipment reserve shall not exceed 208 of the replacement valueof the City's bus fleet. Any excess may be used for other purposes in accordance with the principles outlined in Section 5.4.1 and 5.4.2. 96-24] 10.1 Purpose. The Enterprise Fund Reserve is for the purpose of funding accrued deficits within the City's various Enterprise Funds and for providing a source of operating cash for those enterprise funds which are either subsidized by the General Fund or which may, from time to time, experience operating cash shortages. 10.2 Funding. The enterprise fund reserve may be funded by direct annual appropriation and through transfers from undesignated fund balance or other reserves. 10.3 Authority to Use. This reserve may only be used to reduce the amount of money owed to the General Fund by one or more of the City's Enterprise Funds. Such offsets may be authorised by Order of the City Council. 10.4 Amounts and Limits. The Enterprise Fund Reserve may not exceed the combined amount due to the General Fund from the City's various Enterprise Funds asshown by the last annual audit less those amounts anticipated to be repaid during the current fiscal year. Any excess shall be transferred to the City's undesignated fund balance. 11. Credit Reserve 11.1 purpose. In accordance with State law and the City Charter, the credit reserve is established to assist the City in continuing its normal operations without increasing the tax rate or by reducing tax rate increases. M such, this source may be used to fund any appropriate City expenditure. 11.2 Funding. The Credit Reserve may be funded by direct annual appropriation and through transfers from undesignated fund balance or other reserves. 11.3 Authority to use. Appropriations from the Credit Reserve must be included in the annual operating budget of the City. 11.4 Amounts and Limits. No limitations are placed on the amounts which may be placed in this reserve. 96-24] 12.1 Creation of New Reserves. The City Council may, in accordance with article vi, Section 19 of the City Charter, create such other reserve funds as shall be deemed advisable. Such reserves shall be sated by Council Order which shall include a statement as to the intent and purpose of the fund, the funding mechanism, and the authority to use and withdraw from the fund. 12.2 Elimination of Reserves. The City Council may, by Council Order, eliminate any existing reserve. At the time such reserve is eliminated, the Council shall either transfer any remaining balance to another designated reserve oundesignated fund balance o appropriate the remaining balance within the reserve to be used for the purpose for which the reserve was established, or, with the exception of the Credit Reserve, for any other purpose designated by the City Council. 12.3 Administrative Responsibilities. The Finance Director shall be responsible for monitoring the City's various serves and for insuring that this policy is adhered to. The City Manager is authorized to make recommendations to the Council on the use of reserve funds both as an element of the annual operating budget submission and from time to time throughout the year as needs may arise. 12.4 Annual Report. The Finance Director shall annually submit a report to the Finance Committee of the City Council outlining the status of the City's various reserves. This report shall be submitted within thirty 30) days of the receipt of the annual financial audit or the workers' compensation actuarial study based on the later date at which either document Is received. The Finance Director may also, at his or her discretion, provide partial or complete status reports at other times to the Finance Committee or the City Council.