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. . . City of Arden Hills April I 0, 2003 Page Six Fund balance should be maintained for the following reasons: Pnrposes and Benefits . Expenditures are incurred somewhat evenly throughout the year. However, currently, 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 until these revenue sources are received. . The City is vulnerable to legislative actions at the State and Fcderallevel. The State eliminated HACA aid with the 2001 legislative session and has proposed significant reductions in local government aid with the current 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 fmancing needed for such expenditures. . A strong fund balance will assist the City in obtaining, maintaining or improving its bond rating. The result -will be better interest rates in future bond sales. A summary of the 2002 operations is as follows: Revenue Expenditures Variance - Favorable Budget Actual (Unfavorable ) $ 2,907,378 $ 2,687,660 $ (219,718) 2,736.409 2.578.307 158.102 170.969 109,353 (61.616) 89,839 52,950 (36,889) 1306,100) (122.835) 183,265 (216,261) (69.885) 146.376 Excess (deficiency) of revenue over expenditures Other fmancing sources (uses) Operating transfers in Operating transfers out Total other financing sources (uses) Excess (deficiency) of revenue and other fmancing sources over expenditures and other financing uses Fund balance, January I 39,468 $ 713.704 84760 $ (45292) Fund balance, December 31 $ 753 172 . The largest item of variance on the revenue side was intergovermnentaL This item had an unfavorable variance of $159,163 or 59 percent of the total revenue variance. The State fire aid was budgeted for $165,000, but it is now routed through the City of Shoreview. . The largest item of variance in expenditures was public safety. This item had a favorable variance of $181 ,872 or 71 percent of the total expenditure variance. The change in processing fire aid discussed above accounted for $165,000 of the variance.