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SEP-28-2007 13:20 CITY OF SHOREVIEW 6514904699 P.03/06 • Page 2 Proposed Fund Balance Policy Revisions March 31, 1998 Previous estimates indicated that as of the end of 1997 this proposal would amount to approximately a $130,000 transfer from the General Fund to the GFAR Fund. Based on the discussion with the City Council during the budget workshops, the CIP and CHIRP were prepared assuming the $130,000 transfer from the General Fund. Current estimates indicate that if the City creates the Tax Increment Investment Fund, and adopts the revised General Fund balance policy, that the transfer from the General Fund to the GFAR Fund at the end of 1997 will equal approximately $160,000. The primary advantages of this proposed policy are that it: 1. Sets a minimum and maximum General fund balance through a written policy. 2. Reinvests fund balances in excess of the policy in the efforts addressed by the City's CHIRP, which continues to be a high priority for the City. 3. Provides additional funding for replacement, which in turn will reduce the need for higher tax levy increases to support future replacement costs in the GFAR Fund. This action is important because the City receives significantly less state aid per capita than communities of similar size. This means the City has fewer state aid dollars to balance operating costs and replacement needs, which makes it a bigger challenge to maintain competitive property tax levels. • Since 1989 the GFAR Fund has supported two million dollars in replacement costs. As shown in the most recent CIP and CHIRP, the GFAR fund balance fluctuates up and down from year to year depending on replacement costs. Although the fluctuations have been anticipated from the beginning, fund balances are not growing as fast as originally designed or projected. The CIP indicates that although the GEAR Fund balance was $329,000 at the end of 1996, it is expected to drop as low as $156,000 by the end of 2000, and increase again to $286,000 by the end of 2002. The City's first CHIRP projected that the fund balance would equal $870,000 by the end of the year 2000, and would be even higher by 2002. Lower fund balances are caused by increased replacement needs and tax levies that have been lower than necessary to create the fund balance growth. In any case, both of these occurrences illustrate the need for additional funding in the GFAR Fund_ The proposed fund balance policy will provide additional funding whenever the General Fund balance exceeds the maximum established by the policy. •