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�i`�� y�� %' �� ,i►.�,..._ T J . '''��"'�__�__�i � Memo To: Mayor and City Cot�ncil Pat Trudgeon, Interim City Manager From: Chris Miller, Finance Director Date: August 15, 2013 Re: Summary of City Cash Reserves Introduction The purpose of this memo is to provide a summary of the City's current cash reserve levels, as well as an overview on why the City maintains cash reserves. Reserves are oftentimes referred to as cash, rainy day funds, contingency funds, or fund balance. In many instances these terms can be used interchangeably. However, for purposes of this discussion we'll refer to them as `cash reserves' - or monies that the City can draw upon to pravide for; day-to-day operations, capital replacements, one-time expenditures, or unforeseen circumstances. One further distinction is made with regard to the City's cash reserves. All municipalities are required to distinguish between Nestricted reserves and un�est�icted reserves. These categories are described in further detail below. The Role of Cash Reserves Municipalities maintain reserves for the following reasons: •3 Provide cash flow to support current operations in between revenue collection periods :• To address unforeseen circumstances ❖ To provide for future capital expenditures •:• Strengthen overall financial condition, and bond (credit) rating Most municipalities in Minnesota, including Roseville, rely heavily on the property tax to provide for its General Fund operations. However, property taxes are received by the City only twice per year. Therefore, the City must maintain reserves to offset the lengthy period of time during which property taxes are not being collected. Reserves are also held to address unforeseen circumstances such as weather-related damage to City facilities, or to offset an unexpected loss in revenues like state-aid. In addition, reserves are also systematically established to provide for future expenditures that are expected to occur in the future, such as reconstructing a road or replacing a fire truck. Finally, reserves are held to strengthen a City's overall financial condition. Siinply put, the greater the reserves, the stronger the City's overall financial condition will be. Strong reserve levels allow cities to respond better to changing circumstances, and preserve a greater number of options as compared to wealcer reserve levels.