08-14-07 FPAC Agenda - Laserfiche WebLink

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• 78•Financial Policies:Design and Implementation 1 '< the government is not hording funds. By setting a policy on how funds I1, are placed in fund balance, public managers give elected officials a clear-cut justification for having fund balance. ir Ideally,policies for both unreserved fund balance and various des- ignations(most often in the general fund)should explain how financial resources are set aside. Policies that cover the reserved portion of fund balance are unnecessary since their amount is not subject to the discre- tion of a local jurisdiction's governing body or its public managers. There are three options to set aside resources for unreserved fund bal- ance,as discussed in the following paragraphs. Formulas that Determine Unreserved Fund Balance Amounts Typically,such formulas include one to three months'operating expen- • ditures,or unreserved fund balance as a proportion of annual operating i expenditures, such as 5 percent. An unreserved fund balance target may also be set based on general fund revenues. The City of Federal Way, Washington, requires a contingency designation set at 3 percent of the city's operating expenditures. City of Federal Way, Washington:The city shall establish an appropriated contingency [designation] in order to accommodate unexpected operational changes,legislative impacts,or other economic events affecting the city's oper- ations,which could not have been reasonablyanticipated at the time the budg et ,; p % was prepared.Funding shall be targeted at three(3)percent of the city's operat- ing expenditures. Requirements that a Portion of Any Operating Surplus be Deposited into Unreserved Fund Balance Other fund balance policies may require that 100 percent of surpluses be set aside.Surpluses are defined here as actual revenues exceeding ac- tual expenditures. Such a policy may be useful for governments that rely primarily on pay-as-you-go financing and have major capital pro- jects planned for the next few fiscal years. } Dedication of Revenues from a Specific Source Local governments sometimes dedicate revenue streams to establish an adequate level of unreserved fund balance.Most often,revenue is dedi- 1