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Home My WebLink About4F, Fund Balance Policy ~ ~~HILLS City Council Agenda Packet Item: ~ ~HILLS Request for Council Action ~-Y ~~~~red By: _~~:~v::son V----."...--'^'"'---- Council Mtg. Date: ..fli:t.~r.y~.'.Y,_.~.~..,J9~~___ Final Action Needed By: _!:.~~_~~!ry 28, 2008 Budgeted Amount: Actual Amount: m Funding Source:_. ...............f.I;... f.liA H.. NfA !:~:gRQg,I~~iQ~~~~qq~-~!~d[[ill!11[ffi~[f[iffNf~lm______.'.._mm".............".........".""_...."."...______n__________,,___....._.........___.......................__.__.._.________________,.____,,___....................................."n___________________.__".".'...'_mm..."................_.____________________ ! Motion to approve the City of Arden Hills Fund Balance Policy as recommended by the Financial Planning and Analysis Committee. r~I~linli~QQJil]l'r~li~l~liR~ji~mflgtill~rtmTh1I~}{~L___________________._____".._mm.............._..."..._.__._"_"_.___________________________..__._m....................".".".""___________________________...._"..m....m..m............"_"._...____________________________._m................."......"_"_.____ ! Staff recommends a motion to approve the attached policy as recommended by the Financial Planning and Analysis Committee.. X Memo dated February 20, 2008 ...... No: .eNo.: Recommendation: Recommendation: X !ather: City of Arden Hills Fund Balance Policy [FIH~rrqJ:~nrmJ?[cafiqD~~;ljI~iti_t_[~B_21~il~1[j?lt~ ........."."..._. __ . This policy will set fund balance and net asset guidelines for fiscal year..end. ~ /],\~HILLS MEMORANDUM DATE: February 20, 2008 TO: Honorable Mayor and City Council Jim Willis, Interim City Administrator \.. J Sue Iverson, Finance Director/Treasure~- Fund Balance Policy FROM: SUBJECT: Background: On March 12, 2007, the Council approved formation of the Financial Planning and Analysis Committee. The Council expectation of this group was to work on Financial Policies. A Fund Balance Policy for Fiscal Y ear-End designations was determined to be needed. Discussion: We currently to not have a formal fund balance policy. The completed draft policy has been designed to GASB requirements. The committee incorporated cash flow requirements and designations for each fund using policies from surrounding cities and other cities of similar size. Rating agencies and the auditors look for these types of policies and they strengthen your credit rating. The 2006 audit did conform to this policy as the General Fund balance was 53% of the next year's total operating budget. This is a fiscal year-end policy for reporting purposes. The Financial Planning and Analysis Committee will work further to draft and bring back for review long-range policies for reserve balances. Staff Recommendation: Staff recommends approval of the attached Fund Balance Policy being recommended by the Financial Planning and Analysis Committee. ~ ~~HILLS CITY OF ARDEN HILLS COUNTY OF RAMSEY STATE OF MINNESOTA FINANCIAL POLICIES- FUND BALANCE Fund Balauce aud Net Asset Guideliues (Fiscal Year-End) Purpose The purpose of this policy is to establish guidelines for the City of Arden Hills' components of fund balances and net assets. Primary Policy Considerations 1. To meet the cash flow requirements of the City. 2. To maintain adequate fund balances and net assets in each individual fund of the City. 3. To provide for emergencies and contingency needs of the City. Policy Statements 1. The Finance Director as a part of the annual budget process shall prepare an analysis of this policy. The analysis shall project the status of the budget year ending fund balances and net assets. 2. The Finance Director shall as a part of the annual audit and year-end financial statement preparation process see that the appropriate reservations and designations are correctly made. The designations established through this policy shall be used in designating funds for the year- end financial statement purposes. 3. The General Fund balance shall be designated as of December 31" for the following purposes in the amounts described below: a. The City will maintain a general fund reserve of50% of the general fund's total annual operating budget (this reserve includes the designation for cash flows). This ensures that the City has adequate funds on hand to provide for operations between bi-annual property tax collection periods b. The City will maintain an amount sufficient to cover accumulated vacation and compensatory time balances and that portion of PTO leave that would be payable under the City's severance pay policy or union contracts. This amount shall be adjusted annually as part of the year-end close and annual financial report process. c. For specific purposes as authorized by the City Council. Funds shall be designated first for compensated absences, second for cash flow needs and lastly for emergencies/contingencies. \\Metro-inet\ArdenHills\Finance\Policies and Pnbcedures\Policies\Fund Balance Policy. doc Last printed 2/20/2008 9:36 AM 4. The amount of the General Fund balance greater than the sum of all General Fund designations will be transferred to a fund or funds determined by the City Council. Such transfer is pursuant to Council approval. 5. Fund balances held in Special Revenue Funds or Capital Project Funds for future program and/or project costs and not yet legally obligated will be designated. 6. Fund balances in Debt Service Funds for future debt payments will be designated. 7. City enterprise funds shall have operating cash reserves sufficient to provide for monthly cash flow, and for a reasonable level of equipment and infrastructure replacement. Major reconstruction or system upgrades, may need to be funded from enterprise revenue bonds. Annual utility rate reviews will be made in regard to projected operating expenses and capital improvements. The Council will, on an annual basis, establish rates in accordance to operating cost recovery and the projected capital improvement. 8. Fund balances will be designated according to the above guidelines up to the amount available after other designations. This policy is not intended to require the reporting of deficit undesignated fund balances. Reserved Fund Balance and Restricted Net Assets - Portion of fund balance that is not appropriable for expenditure or is legally segregated (restricted net assets) for specific future uses. The City has several items that are legally restricted to a certain use such as: police forfeiture funds, federal and state economic development revolving loans, park dedication fees, and bond proceeds. The City has several amounts unavailable for appropriation such as: advances and deposits, inventories, etc. These types of items will be reported as reserved fund balance and lor restricted net assets as required. Unrestricted Fund Balances Portion of fund balance that is appropriable for expenditure and not legally segregated for specific future uses. Unrestricted fund balances may be either designated or undesignated. Designated Fund Balance - Designations represent management's intended use of resources. Designationfor cash flows - This designation will be established for the General Fund which is funded largely from local government aid, property taxes, and market value credit. Designation for special revenue funds - All amounts in the TCAAP Fund, Cable Fund, Risk Management Fund, Park Fund, and Community Services Fund are used for special or specific purposes and will be designated for such. Designation for capital projects - All amounts in the Equipment, Building & Replacement Fund, Public Safety Capital Fund, and the Capital Improvement Fund (PIR) are used to fund the capital improvement program. The fund balances in these funds will all be designated for capital. Designation for economic development - The City has grants and property tax monies (TIP) dedicated for economic development. These funds will be designated for economic development. Designationfor revenue stabilization - Revenues can fluctuate greatly from year to year, especially interest earnings, and, in previous years, local government aid. This designation will be used if determined to be needed by the City Administrator and Finance Director. \\Metro-inet\ArdenHills\Finance\Policies and Prikedures\Policies\Fund Balance Policy. doc Last printed 2/20/2008 9:36 AM Undesignated Fnnd Balance and Unrestricted Net Assets - Current resources available for which there are no government self-imposed limitation or set spending plan. General Fund - The unreserved fund balance should be at a minimum 50% of operating expenditures (this includes the designation for cash flows). The City's goal will be to follow this recommendation. Special Revenue Funds - Most of these funds will be designated for specific purposes and the undesignated fund balances should be near zero. Debt Service Funds - Most of these funds will be reserved for debt service and the undesignated fund balance should be near zero. Capital Projects Funds - Most of these funds will be designated for the capital improvement plan or reserved for a specific project and the undesignated fund balance should be near zero. Specific capital improvement funds may be negative because they are waiting on funding but should zero out at the end of the proj ect. Enterprise Funds - It is expected that unrestricted net assets will be large. These funds have large investment in infrastructure that needs to be maintained. The City will periodically complete a rate study for these funds to ensure rates and unrestricted net assets are sufficient to operate and maintain these activities. Review and Approval The fund balance policy shall be formally approved and adopted by resolution of the City Council and any future changes to the policy must be approved by the City Council. Approval by the City Council the _ Day of ,2008. Stanley D. Harpstead, Mayor Date Jim Willis, Interim City Administrator Date \\Metro-inet\ArdenHills\Finance\Policies and Procedures\Policies\Fund Balance Policy. doc Last printed 2/20/2008 9:36 AM