HomeMy WebLinkAbout1991-07-08 91-274 RESOLVEDate 4VV'°sR_m Item No. 91-274
Item/Subject: ����2 9xcat ap�g
Foods �Repaserve Npsal to t:pCurrentent ebtE
mte
Responsible Depertmeopp:
flee any's Projected M1 faah Deficit
City Manager
Commentary:
M you are mare, the City Charter requires an annual escbmte of the general, fwrl
cash surplus or cash deffcit. gte couppebanum of the surplus or deficit is govemal
by City mliinarse.
Throughout the budget process, it seesasemr i that the cants surplus or �it mould
be 0 for FY92. On ,Mase 17, the Finance Dirstnr, based on May's £inmicial reports,
pmjectcil a cash deficit of $523,165 age of the end of tho City's fiscal year.
PusuasK to Article W, Section 4(c) of the d Yar, the mutual budget stall contain
"a bpymucnd re]atiaehip betpen the total estimated expenditures and the total
anticipated rename cash receipts taking torn account the PBtinntal ganexai Fund
tush surplus or reels deficit at the end of the current Eiacal year. •'
1his attadl Order will approlsiate $523,165 fral the City's (Yed£t Reserves Ned m
meet this Charter laovisum. in Sema of the attached calculation, chis will in
effect reduce cur designated feud balmre and Distresses our cash mel cash
eguivelersis.
The inimticn of this efforts is ret to actually expend these £beetle. Ratlpr, this
aortal will neat the Charter provisiore and fall through in our annual audit to Thee
City's Ertl ba arlre. (Cast'd. on red: page)
wir+nr +see
Manager's Comments: -
Cay MnnnKe,
Associated Information:
Resolve, Cash Surplus Calculation, Memo from Finance Director,
Men from City Manager
D°dget Approval:
Fixm[v Oim
Legal Approval:
yIrSJ. Ci[Y SMi[imr n'
Int msd For
Fe
First
First Reading Pap —Oi—
❑Referra)
I have attatl i eemtel maroxazda M�StT have pcevio y bce I>�'i�led To the mil
relating to the cash emcp
Sdeficit falcula myself
imLaiea a raft �m
fmn
Sohn rn,.....+... as „alll a l
as onge[ �o mn myself of several yams ago.
wa haw eci�letl this item £e diacuealon at tha r� Cnmiittea neaGug w la
held F"e y prior to the (buncil neatiM.
91-2]4
Assigned to Councilor Sullivan, July 8, 1991
CITY OF BANGOR
nyn� 1Natli;g the Adapted F492 Budget by Appropriating File from
th�enCiajdiri' "Male �tntl Equal w the"pivalt Fstimele of tpie at S hojectaG H91
Crib Deficit
By W City CudeaV of the City of Beaver.
BBBOLVBD.
4Ay:0 t Article Vl, Section 4 of the Charter of the City of a npr out inns
annual budget ptoctrLuec for the City of Elangor; ani
4y10ty,Ag, there is hereby apprcgsiated an monR of $523,165 from the Credit
Reserve Fund to be adjaet i for the estimated cash deficit as of Jove
30, 1991; and
h]WaG, these procedures; require that Ue estimated general fwd cash surplus
or deficit be raettls_nd in the annual budget; and
lam, Ute Finance Director has prepared an estimate projecting a cash deficit
as of June 30, 1991; and
480Pa6, providing footle fou such a deficit through prgmrty taxation would
increase Ue'bmbn on avepr residents already resulting Econ
decli nm -tax revenues; and
4E®ttAS, the City has previously established a Credit Reserve ELnd designed to
runWce the single year ingvct of increased property torahs;
Mae TIS, BE 1T �VEp THAT, Ue adopted Fs92 Sed]et by wended by
approprgating footle from tie Credit Feserae Fund equal to Ue current
estimate of Ue City's projected MI cash daficlt.
IN CITY COUNCIL
July 8, 1991
- Amendment was withdraen.
Order Passed.
CITY E&R�
91-294 F ,>
R E S 0 L V E
Amending the Adopted FY 92 Budget by
Apptopriatiug Funds from the Credit Case
ve
Fund Equal to the Current Estimate f th
Cfty a Puotected PY 9l CesM1 Oeflcit
J
Surae 17, 1991
1bv 1Haawxl A. Baaett, City Naw9ec
Fit Sohn ?�, F� D3xecfoi
bat Cash 6u 1p Calculation " 1992 Fafget
This mala will update our earlier dif 5m about the cash suxplms
calculetion foz tM FY 1992 hxkpt. Ths estis mv, lased at the
5/31/91 activity xupo is that Us$e will ba a cash deficit of $523,165
iatla3r than a cash surplus re of Jure 30, 1991. The Omgmtatfm follaat
Cash aril cash equivilantat
$
2,784,144
Ore fmo Offer Fmtle
5351831
Tcconnts Fecelvable
922,816
State of Moire (Jure aclvol
subsidy)
sm,ma
Tams p ivable
1,849,942
Slbfofal
$
6,812,733
Pccwmts payable
$
l,000,000
wrlmi•s Capp liability
619,088
pxepaid 1
70,607
Deferred Tama
2,024,986
ffiicmobratcva
315,492
a mated £lmtl Balarcws
3,305,813
S+,mmni $ 7,335,898
Net Cash Deficit $ 523,165
CITY OF ee }wa LOWS 04001,
REET
MAINE
JohnWarura
MAINE I ® F JUN13
�FINANOxwoomBTMENT MANAGER$ ,, roc. wrroasum
ra, Flrarue Dlreewr
June 19, 1991
To: Edward A. Barrett, City Manager
Fr: John Duartararo, Finance Director
Be: Cash Surplus/Deficit Calculation
At the budge review session last Evening the attending Councillorss
indicated a desire to deal with the i of the cash surplus/deficit
calculation, Cede. Chapter 11, Article 2, section 2.1, paragraph 1,
sentence 2, and Paragraph 2. While the [darter requires the Calculation
of so called 'cash surplus/deficit' and the use of cash surplus to balance
revenues and expenditures in the budget, the Code defines the calculation
for determining the cash surplus/deficit. There is no definition as to
what this amount is measuring, demonstrating. or indicating about the
financial status of the City of Bangor. This is not a measure found in
Generally Accepted Accounting Principals. Further, this item appears to
beuniquely the city's, and may have roots back to the charter adopted i
the1930s. Whatever the calculation, the product of that calculation is
an amount which appears net where on the city's balance sheets, therefore
to consider this amount a offsetting revenue in the budget actually
requires s appropriation ofnundesignated fund balance, which is the
city's unrestricted equity.
While a definition of the calculation has been made through amendiAD the
Cede several times in the Past, the Charter requirement of the existence
of a item so called 'cash surplus/deficit' and the balancing of re
and expenditures through the consideration of cash surplus in the budget
underlies the amendments to the Code. Pending any action which would
amend the Charter to remove this item from Article V1, section a Budget,
subsection (c) (2), and (c) (5), the Council may again revise the
calculation to establish:
1. that the use of cash surplus for budgetary purpose constitutes an
appropriation of undesignated General Fund fund balance,
2. a target for undesignated General Fund fund balance on the
magnitude of B% to 12% of the prior year's approved General Fund
expenditure budget.
3. the deduction of the target undesignated General Fund fund balance
shall be deducted from the initial calculation and any resultant surplus
would be constitute that Portion of undesignated fund balance which would
be appropriated for support of the budget, and,
0. that the estimated amount in the budget message shall not be
controlling, rather the amounts computed based upon the audited financials
for the most recently completed fiscal Year shall constitute the amounts
to be relied upon when Computing the actual amount during the fiscal Year.
Inter -Office Memoraoaon
City Manager's Office
Date:
June ], 1989
To:
Honorable Chair
and
Probers
of
the
Council
From: Edward A. Barrett, City Manager
Re: Cash Surplus
As you are aware. the Cash Surplus figure for next fiscal year has become an
issue which must be addressed in this budget process. The major issues
involve the formulas for calculating the cash Surplus within the General
Pond and the Enterprise Funds as well as how to handle a enterprise fund
calculation which for the firsttime shows a surplus. Flat follows will
provide you with same
tue background infatuation regarding the cash surplus
system and outline options and recommendations you may wish to consider.
CHARTER ANO CODE PROVISIONS
The origination of the concept of a cash surplus Is based in the City -s
Charter, Article V1, Section 4(c). The relevant sections of this provision
state:
(c). The an nual budget shall contain: . (2) a estimate of
the generalfund cash surplus o cash deficit a[ the end of
the current fiscal year; . (6) a balanced relationship between
the total estimated expenditures and the total anticipated
revenue c
ash receipts taking Into account the estimated general
fund cash surplus or cash deficit atthe end of the current
fiscal year.
The intent of this provision is, I believe, clear. It is designed to insure
that the City does not plan to operate at a deficit for any given fiscal
year and to insure that subsequent years immediately adjust for a deficit
should an unplanned deficit occur.
Please note that the Charters language does not define how the cash surplus
is to be calculated. In addition, it does not cover the operation of the
City's enterprise funds. In Chapter I1, Article 2e Section 2.1 of the Cade
of Ordinances, the Council has further defined the cash surplus calculation
as foliDws
..the Finance Director shall make the following calculation
from the annual audit report to determine theexistence of a
General Fund Cash Surplus or General Fund Cash Infiniti
Combine the cash balances of the General Fund and Enterprise
Funds; deduct the entreat liabilities of each of the above
referenced funds (including encumbrances r
and consent portionof
Enterprise Ponds long-term debt), but excluding any amounts doe
between fuddle. In addition, deduct the reserves of the General
Fund designated for a specific purpose, excluding non-cash related
amounts. A positive result will be a cash surplus and a negative
result will be a cash deficit."
-2 -
As you can
s, this provides both a definition of the calculation as well
as requires that Enterprise Funds be included. In the past, this has
generally re sulted i conservative estimate and calculation of the cash
urplus lalso believe that this approach was generally based on the
assumption that the Enterprise Funds would show a combined cash deficit and
that the General Fund would therefore be required to set aside a cash
reserve to support the cash floe needs of the enterprise funds. Clearly,
this assumption is not accurate for the current year.
A revised estimate
r
mate of our year-end cash surplus calculation is attached.
This estimate is based o our financial status as of mid-May. Please also
note that the status of each individual fund is shown separately.
The logical question arises as to why we should consider changing the cash
surplus calculation at this time. There are
• number of long and short Cerm
reasons why 1 believe a change is appropriate. These include:
1. The current
ent formula requires that virtually all current
liabilities be deducted from the cash surplus calculation.
Beginning with the City's financial report for PY88,raccountants
required that accrued payroll and workers' compensation liabilities
he recognized inoar financial statements e •w liabilities. As a
result, o estimated cash surplus was reducedby-approximately
$300,000 after the budget had been adopted. Further, both of these
liabilities were fully budgeted in the following year's budget.
This approach, in effect, double penalizes our taxpayers.
2. The Cash Surplus can be highly variable. A summary of o ash
r
surplus calculations for the last four fiscal years is attached.
Note that the total cash surplus went down almost $600,000 between
PY85 and FY86, went up $300,000 between FY86 and FY87, and dropped
over $1,000,000 between FY87 and fY88. Such swings in the cash
surplus calculation make it extremely difficult to exercise sound
and cautious financial planning. It may result in the need for
dramatic tax i [vice reduction Sn any given fiscal
year. ConverselyBit a may provide windfall operating funds in oche[
years.
1. The variability of the cash surplus formula is heightened by the
inclusion of the Enterprise Funds. A clear
rent example is the
Parking Fund. At the present time, we estimate the Parking Fund
will have a cash surplus of $310,734 at the end of this fiscal
year. we also knowthat this surplus will be got nr
t year and
that substantial cash deficit will exist as" the c tportion
of the facility s long-term debt bits the calculation. Next year,
the Parking Fund alone might account for a $500,000 swing in the
cash surplus calculation.
4. Finall-3-
b teasOnabi Y, the car
des
as
ch Ask
Purpose.1g ateda P aP art, tax PrP0' The
fpea It
diffi cul[ [o develop a
COV
° a8e. P the, rca an pt eve Purpose Sven tnpu on c
malt Poses en he r 52.5 lllfon as mry (rya np Ga$1 abt31 tY for
=^ear f l$n effect, tea is the fo enas
City- 8, Fieta plannin Ola Penal tr a[mulad fat a e lc
eectf
i[Y"s to M1ave SS asocial Snst e
entl leve or
a or c flpy
Based o f [neiv plopsand bond a[adle co ae gee, to ao
review o thcpr C asiderat Peta tin r ting
to discueaion longe a budgate Held In Psnlee Generally
what would _ °f rectaat eea and atece
it Is tleatre
CASH SUBPLp na Pen If no �a'l8ee pare and 3[erna [itoward a neatiate
sYa tem[ rgear tSme [p
a
Nnder cuSr UB PY 1990 made Fpr the L an fate a ew
follow the r coping Year. like to r 8
e based on tour
rd'o.rcee
General c the cul[ of [rye c
Suter 'wand Cash Sur t r ant update: ant calcula tips ig a
Pr$ae Fund Cash Surplus current
$1,321,44]
While a
TOTAL 82644
Of $1,393,523 firat this
re9ui rea' there seeps up be $2.197,711
e great
which
showae neurPl us at we trme th ntry et ra eSBa pr amount 6 264 from htfieP Ent
over las
$n Pa°ticuler [ Yeat'e tp [el
the follow 8 funds rtfon OF would
bs aPPort rPrise Funds -toe formal,
elr
FUND would be aflecshare oOf a the oto[atthose fpndgeral
Sewer surplus. As
ParkinA6t0UM
A1rPOr9
'659
57
TOTAL .728
Note that 6=
Air Patt. Oft ppai[ip would
use frog [ $ 876,264
sa
Thfa fund ie a3 so Peet. AO perkfat ag Fund
us
re tea[ c e b]ecc Oto tannest �arin,a In tA0 s w
tlerl °neer eat Part
111 a know will be
from [rypin8 (hie aPProach para ie true the
oesee ter f to at t e
re I f al most die tncen[lve O°tatip"a 1[0 Ceah sato!pno clear °(Aloe/deficit.
0
o U to ne gen muu or Po
Incy
ld im o'hG beams° Gaeta nL AS1POr[ p$a Fund 1p fund. t[n0 tranef r$f Oda
nal p veli abl 1 fu p and will Managers C e • It Could
onppY Impact o rPor[ Dare aua reduce
are1 uca transfer
acnes IO]p[ts a the le a Chat
I lea andntraneten Should the £Ocala,
operations.
4 -
OPTIONS AND RECOMMENDATIONS
As discussed at a prior meeting, the Council has a number of options. These
include:
1. Continuing to use the current formula and tranafering the money
from the Enterprise Funds as outlined above.
2. Modifying the formula to eliminate Enterprise Fund cash
surpluses from the formula for calculating the .General Fund cash
rplme
3. Modify the formula to allow the Conseil to make an annual
.Judgement as to how much, if any, of the enterprise surplus will be
transfered to the General Had.
h. Adopting a new approach toward Enterprise Fund transfers to the
General Fund.
In addition, the Council can consider changing the cash surplus formula to
eliminate reducing the surplusfor those liabilities which are fully funded
In the following years budget.
The effect of each of these options would be as follows:
OPTION 1. $8I6,266 would be tranafered to the General Fund from the
Enterprise Funds. This would constitute ae-year windfall for the
General Fund. We can be virtually sure that this number will go
down the following yeac. In addition, there is some question as to
whether a transfer of almost $700,000 from the Airport would result
in violation of various agreements
with the Federal Government
regarding appropriate utilizationof Airport Revenues.
OPTION 2. With the increase in the projected General Fund surplus
shown in the moat recent calculation, this option, when coupled with
adjusting the formula: would result in a small decrease in operating
revenues farn ext year. This Option would be workable and
conservative. At the SOW time, it would not allow for recognition
of the profitability of certain of our Enterprise Funds.
OPTION 3. This option would result in a continued policy of having
o policy. This could result in future year abuse and problems.
OPTION d. This will be discussed below.
RECOMMENDATIONS
I would make the following recommendations for Council consideration:
1. Budget $1,500,000 as the cash carry forward amount for next
fiscal year. This is based on the updated General Fund cash surplus
calculation with the workers"sop and payroll liabilities backed
out. To be conservative,
vative, the adjusted surplus has been reduced from
.$1,656,447. This aboard provide a safety margin for any 'changes
which may occur during the remainder of the year..
-5-
2. Allocate 3% of the F790 Sewer Fund revenues to the Capital Fund
for c street overlay and reconstruction. This urepre
approximately $72,000 andIs, in Opinion, inion, fullyt
justified
Payment from the Sever Fund to offset street deterioratioa
costs
resulting from street cuts required for sewer maintenance.
3. Allocate 3% of the FY90 Airport Fund revenues to the General
Fund. This is esitmated on $206,052 for FY90^Ye This amunt will
cover currently unallocated General Fund overhead (Mayor and
Council, City Manager, Purchasing, Personnel, Finance, Data
Processing, etc.) This payment will also help support services
which the City must provide for the Airport's continued functioning
such as street maintenance, police and fire protection.
0. Establish an Airport operating and Reserve Full with a goal of
$3 million. This will be an insurance policy against future
downturns In the aviation industry and should guarantee that the
Airport will be able to continue to make payments to the General
Fund. Recall that businesses and Individuals must pay their taxes
in good times as well as bed.
5. Adopt a formal policy of reducing the General Fund Cash Surplus
by at least $250,000 per year. Should the cash surplus be in excess
Of the established goal in any given Year, the a ,old be
e
allocatedeto the General Fund Reserve (Credit Reserve)untilthis
reserve aches 5% of the General Fund non -school operating budget.
Once thislevel is reached, it should be maintained and anything in
excess of this e u should be allocated to the Capital Eudget to
deferfuture year borrowing needs.
6. The cash surplus formula should be amended to:
a. Eliminate the inclusion of Enterprise Fund surplus In
the General Fund surplus calculation.
b. Eliminate liabilities which are fully funded in the
fallowing year from the calculation.
C. Insure that general Fund surplus available for use
for teal enterprise deficits resulting from such items as the
current portion of the long-term debt or revenue shortfalls.
While a lot of the discussion of the cash $urplue/defielt situation may seem
to involve technical accounting problems, I believe a comprehensive and
and approach to the issues involved in this calculation is essential to
our long-term financial stability. This approach which I have outlined will
move us, ra Period of time, toward firmly establishing the basic
principal of local government operating budgets: Current revenues must
u
equal Current expenditures. Implementing the recommendations eoutlined above
may not be simple. We would, fare ample, be committing to anual
reduction of $250,000 per yea at Gen At the s
amer
time, hon a have experienced historical fluctuations in the General
Fund surplus far In excess of this amount of the past years.
I believe this approach is sound and comprehensive and recommend it to you
for your consideration. n
EAS/jar Edward A. Har Pett, city nanager
Attachments
City of Bangor
Cash Surplus/Deficit
Fiscal 1990
-
City
Base
Total
General
Sever
Nursing
Parking
Park
Golf
Airport
Enterprise
Total
Fund
Find
Facility
Find
Find
Course
Fund
Fund
All
Cash
$4,911,853
$330,000
$(290,000)
$345,000
$(200,000)
$( 50,000)
$2,000,000
$2,135,000
$7,046,853
k
Accounts Payable
(' 3]5,000)
( 30,000)
( 15,000)
( 2,500)
(125.000)
( 2,500)
( 300,000)
( 425,000)
( 850,000)
Accrued Payroll
( 165,000)
( 5,000)
( 1],000)
( 2,000)
( 10,500)
( 2.500).
( 35,000)
( ]2,000)
( 232,000)
Workers` Comp.
-
' Liability
( 120.000)
-
( 95.000)
-
( 10.000)
-
( 65,000)
P 120,000)
( 340.000)
Deferred Revenue
-
-
-
-
-
-
-
-
-
Taxes Collected in
Advance
( 10.000)
-
( 10,000)
Current Portion of L -T -D -
(230,216)
( 2).000)
( 8.266)
( 32.228)
( 65,000)
( 127,976)
( 491,736)
( 491,)36)
Reserved for
Encumbrances
( 200,000)
( 15,000)
( 6.500)
( 3,000)
( 2,500)
( 1.500)
( 21,500)
( 50,000)
( 250,000)
Designated Reserves
(2,620,406)
-
-
(2,620,406)
Cash Surplus/deficit
1,321,442
49,704
(450.500)
328,734
(380,220)
(121,500)
1,450,524
876,264
2,19],]11
Adjust for Payroll 6
Workers' Comp.
333,000
5.000
112,000
2,000
20,500
2.500
100,000
242,000
522,000
Adjusted Cash Surplus/
Deficit
1.656.447
54.784
(338,500)
330,734
p60,228)
(119,000)
1,550,524
1,118,264
2,224,211
City of aa. or
Cesi0nate6 Fun3 Balance
6-30-89
Balances Carried Forward
$ 250,000
Scbaol Dept. Surplus
210,000
Motor F l Reserve
300,000
Bus Reset/ a
91,084
Fire Reserve
222,855
Capital improvement Reserve
153,062
Self -Insurance Reserve
759,330
Credit Reserve
684,075
82,6]0,406
city of �
uowsotewe re telt
1965 - 1988
Juu 30. 1905 Jam 301 1986 JUM W, 107 Jure 30, 1988
C Ial
Este else
IDG1
ti rll
ll..c
w .w.
.e ...e .
........
. .......
......
. .
C5s0 ].529,052
( 90.382)17.438.665
7,391.159
101.924
7,493.053
6.356,733
558.59
6.915.256
$x]85.]29
991.042
6.977.5)6
#c'C PaYa le (3]9.1511111271.15111
(650,388)
!25016581
(139,764)
1398.4221
(331,040)
(213,87])
1549.9171
(544,917)
(449,3981
1638.N1)
Xceuetl PeymLL
)144,660)
l 521099)
11064041
Nbckecs' Psp.
Lwbil l[Y
)144.000)
I170.6921
04016471
is'es COWctetl
la M"Lm, 1 7.2381
1 7,238)
l 10,7)9)
! 1Or 0191
(1]y 101
1 SLSl01
( 7,0.909)
1 10.9391
wfe¢atl Wv. ( 16.684)'
( 16.684)
1234.1461
( 10.2901
124414361
(165.027)
1 7,4901
(172,517)
( 11,836)
1 35,1661
1 47.0521
4 5 tloa
of L -T -O
(311.]9911
(350.518)
(350.518)
1370.5201
(37015M)
(469,1)41
(469.334)
EwW. [arms (167.652)
( 7].35)1
(244,905)
( 99,6911
( 51.012)
(150.103)
(15!.158)
1 22,0991
(126.251)
(201,406)
1 14.1151
(295.601)
ceeese des 1].678 899)
3.6]8.894
4,1 163
f Si 16001
4 305.3201
J L>2.7,001
( 6,000)
),7,78.990113166.6651
(20.6001(3.195.2651
3.229.4)3
(756 SPI
2.522,095
2.6 M 1595
1504,8901
2.13).705
2.517.278
1 62,2631
2.455.015
.625.980
192.45111
1,393159