CCP 05-13-2002 - Laserfiche WebLink

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City of Arden Hills April 10, 2002 Page Three . Other Matters The following are areas that came to our attention during the audit that we feel should be reviewed: General Fund . Most of the general fund revenue comes from property taxes and property tax credits. These two categories represent 69 percent of 2001 revenue. This type of revenue is received during the second half of the year. As a result, a reserve for working capital needs to be established around 35 percent of planned expenditures. The City has excellent reserves for working capital from several sources. The total fund balance in the general fund is $713,704. This represents 26 percent of 200 1 expenditures. The general fund draws any additional working capital from several permanent reserve funds that have total fund balances of approximately $9,600,000. The State has recently indicated they may consider reviewing fund balance reserves of local governments when adjusting the local government aid formulas. This may negatively impact the City if reserves in excess of the amount needed for working capital are not designated. A designation indicates intended use of fund balance. The City has done a good job of showing intended use of fund balance by transferring out amounts in excess of what is needed for working capital in the general fund to permanent reserve funds. Formal designations of those reserves should be considered annually. It is important to maintain an adequate fund balance for the following reasons: Expenditures are incurred somewhat evenly throughout the year. However, property tax and state aid revenues are not received until the second half of the year. An adequate fund balance will provide the cash flow required to finance the General Fund expenditures. The City is vulnerable to legislative actions at the State and Federal level. The State eliminated HACA aid with the 2001 legislative session. Levy limits have also been implemented for municipalities in past legislative sessions. An adequate fund balance will provide a temporary buffer against those aid adjustments and levy limits. . Expenditures not anticipated at the time the annual budget was adopted may need immediate Council action_ These would include capital outlay replacement, lawsuits and other items. An adequate fund balance will provide the financing needed for such expenditures. A strong fund balance has assisted the City in determining its bond rating. The City received an AAA rating from Standard and Poors on its 1998 bond issne. A summary of the 2001 operations is as follows: . Revenue Expenditures Excess of revenue over expenditures Other financing sources (uses) Operating transfers in Operating transfer out Total other financing sources (uses) Excess of revenue and other financing sources over expenditures and other financing uses Fund balance, January 1 Fund balance, December 31 The category of revenue with the greatest variance was nonbusiness licenses and permits. It had a favorable variance of $221,135 when compared to budget or 68 percent or the total revenne variance. The largest category of expenditure variance was in capital outlay. This function was $43,072 over a budget of $184,500. Variance - Favorable B ud~et Actual (Unfavorable) $ 2,775,374 $ 3,103,695 $ 328,321 2.453.941 2,613.114 059.173 ) 321.433 490.581 169.148 15,000 51,583 36,583 (333.750) (463.750) (130.000 ) (318.750) (412.167) (93.417) L-__2,6S3. 78.414 $ 75731 635.290 $ 713.704 . . . Transfers out were over budget due to the policy of transferring excess revenue to reserve funds.