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Memo <br />Attachment G <br />To: <br />Mayor and City Council <br />Bill Malinen, City Manager <br />From: <br />Chris Miller, Finance Director <br />Date: <br />August 27, 2012 <br />Re: <br />Summary of City Cash Reserves <br />Introduction <br />The purpose of this memo is to provide a summary of the City’s current cash reserve levels, as <br />well as an overview on why the City maintains cash reserves. <br />Reserves are oftentimes referred to as cash, rainy day funds, contingency funds, or fund balance. <br />In many instances these terms can be used interchangeably. However, for purposes of this <br />discussion we’ll refer to them as‘cash reserves’-or monies that the City can draw upon to <br />provide for; day-to-day operations, capital replacements, one-time expenditures, or unforeseen <br />circumstances. <br />One further distinction is made with regard tothe City’s cash reserves. All municipalities are <br />required to distinguish between restrictedreserves and unrestrictedreserves. These categories <br />are described in further detail below. <br />The Role of Cash Reserves <br />Municipalities maintain reserves for the following reasons: <br />Provide cash flow to support current operations in between revenue collection periods <br />To address unforeseen circumstances <br />To provide for future capital expenditures <br />Strengthen overall financial condition, and bond (credit) rating <br />Most municipalities in Minnesota, including Roseville, rely heavily on the property tax to <br />provide for its General Fund operations. However, property taxes are received by the City only <br />twice per year. Therefore, the City must maintain reserves to offset the lengthy period of time <br />during which property taxes are not being collected. Reserves are also held to address <br />unforeseen circumstances such as weather-related damage to City facilities, or to offset an <br />unexpected loss in revenues like state-aid. <br />In addition,reserves are also systematically established to provide for future expenditures that <br />are expected to occur in the future, such as reconstructing a road or replacing a fire truck. <br />Finally, reserves are held to strengthen a City’s overall financial condition. Simply put, the <br />greater the reserves, the stronger the City’s overall financial condition will be. Strong reserve <br />levels allow cities to respond better to changing circumstances, and preserve a greater number of <br />options as compared to weaker reserve levels. <br />1 <br /> <br />