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.. City of Centerville March 29, 2002 Page Four Fund balance should be maintained for the following reasons: Purposes and Benefits Expenditures are incurred somewhat eveuly throughout the year. However, 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 fmance the General Fund expenditures. Your fund balance appears to be sufficient to provide this working capital. The City is vulnerable to legislative actions at the State and Federal level. The State eliminated RACA aid with the 2001 legislative 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 anoual 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 maintaining or improving its bond rating. A sunnnary of the 200 I operations is as follows: Budget Actual Variance - Favorable (Unfavorable) Revenue $ 1,654,582 $ 1,790,729 $ 136,377 Expenditures 1.532.352 1.974.028 (441.626) Excess (deficiency) of revenue over expenditures 122.000 (\ 83.299) (305.299) Other financing sources (uses) Operating transfers in 177 ,225 177,225 Operating transfers out (\ 22.000) (122.000) Excess (deficiency) of revenue and other fmancing sources over expenditures and other fmancing uses $ (\28,074) $ (]28 074) Fund Balance, January 1 841.154 Fund Balance, December 31 $ 713 080 o The majority of the favorable revenue variance resulted from licenses and permits in excess of budget by $83,438. o Interest income was $55,908 under budget. Even with a 5 percent rate of return the budget would be too high. Interest rates were around 3 percent to 5 percent at the beginning of the year and 1.5 percent to 3 percent at the end of the year. The City needs to consider its current cash balance when setting the budget for interest. o The majority of the unfavorable expenditure variance resulted from capital outlay in excess of budget by $290,223. A portion of this variance was funded with a $109,191 transfer from the Park fund. o The City does not budget for the Fire aid revenue and subsequent payment to the relief association. The payment to the Reliefwas $100,393 and accounted for over 25 percent of the expenditure variance. We recommend the Fire aid and payment be rellected in the budget.