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However, even with thesereservelevels, the City remains$1.8million below the Council- adopted target levels.In addition, only $7.2 million is unrestricted and available for general public purposes. Again, the Council is cautioned when considering whether to re-purpose these funds. Doing so would leave critical functions in a weaker financial condition. The City also maintains cash reserves in its capital replacement funds.The following table depicts the City’s current cash reserve levels as of 12/31/11 (the last year for which audited financial statements are available) for key capital replacementfunds: TargetActual$$ Over$$ Amount Fund2011Pct.Pct.(Under)Unrestricted Police Vehicles & Equipment$133,242n/an/an/a$133,242 Fire Vehicles & Equipment368,041n/an/an/a$368,041 Parks & Rec Vehicles & Equipment25,358n/an/an/a$25,358 Public Works Vehicles & Equipment204,329n/an/an/a$204,329 Central Svcs. Equipment93,928n/an/an/a$93,928 Building Replacement576,280n/an/an/a576,280 PIP322,823n/an/an/a- Street Replacement$12,829,107n/an/an/a$12,829,107 Total$14,553,108$14,230,285 As indicated in the chart, the City has approximately $14.5million in cash reserves in its key capital replacement funds –funds set aside for future capital.Nearly all of these reserves are unrestricted meaning they could be re-purposed. Again, doing so could come at great expense to existing programs and service levels.The Council is strongly advised to look at the 20-year Capital Improvement Plan (CIP) to fully ascertain whether the reserves held in these funds are sufficientto meet the City’s long-term capital asset needs. Relationship between Reserves & Property Taxes In addition to the roles identified above, cash reserves also play a role in determining what the City’s property tax levy needs to be. In 2011, the City’s operating cash reservesearned approximately $850,000in interest earnings. These interest earnings were used to provide funding for current operations, thereby reducing the amount needed from property taxesor fees. A significant portion of these earnings werecontained in the Street Replacement Fund and were used to finance the annual Mill and Overlay Programfor neighborhood streets. Holding all other factors constant, if reserve levels drop by 10%, the City would have earned only $750,000in earnings; a decreaseof $100,000. This would have necessitated a corresponding increase in the tax levy and/or fees to keep funding levels the same. Final Comments It is recognized that the City’s overall financial conditionis strong in large part due to its healthy reservelevels. However, the Council is advised to refrain from unsustainable practices such as using reserves to support regular on-going operations. In addition, to remain strong, cash reserve levels need to continue growing in proportion with the operating budget. 3