08-14-07 FPAC Agenda - Laserfiche WebLink

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74■Financial Policies:Design and Implementation e.g., public works crews for snow removal) or capital costs (e.g., new infrastructure needed due to storm damage). Other forms of uncer- tainty that may require the use of a contingency reserve or designation include: • Rising energy costs; • State and federal mandates,both legislated and judicial; • Increasing health care costs; • Unexpected employee overtime costs; and • Financial impacts from labor agreements. Financial resources set aside for contingencies in a local govern- ment are properly classified as reserved fund balance only when man- dated by state statute. Otherwise, senior management designates re- sources for contingencies. • Maintain Good Standing with Rating Agencies Bond rating agencies (such as Standard and Poors,Moody's,and Fitch Ratings) evaluate several financial indicators to assess governmental fiscal health and the overall economic health of the community at large. An adequate level of fund balance is considered a sign of creditworthi- ness because it enhances a government's ability to repay debt on time and in full. Fund balance should be maintained at an appropriate level considering the locality's own unique characteristics. (Proper size of fund balance will be discussed later in this chapter.) Rating agencies view sudden drops in fund balance unfavorably. Avoid Interest Expenses for Operating Budget Needs and Capital Projects There are two main methods for avoiding interest expense through the use of fund balance: 1) fund capital projects using fund balance rather than debt and 2)cover expenditures when revenue is unavailable using fund balance instead of debt.Capital projects that are funded using cur- rent resources are typically referred to as pay-as-you-go projects.Using pay-as-you-go financing allows a government more spending flexibil- ity as less revenue is used to meet future debt service obligations. The Government Finance Officers Association (GFOA) strongly discour- ages governments from using debt to fund operating expenditures.7 • -77 1S4a4i'k'4