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Letter of Transmittal Page 4 Expenditures related to major building repairs fluctuate signifi- cantly from year to year. If these expenditures were funded by ' the property tax, the tax levy would be increased or decreased ' significantly each year based on facility maintenance needs. The creation of a reserve fund provides a source of funding that pre- ', vents the wide fluctuations in tax levy for facility maintenance. '' Also, because the essentially unstable revenue source is being ' reserved only for specific needs rather than being totally ' expended each year, it becomes a stable funding source that can meet the City's facility maintenance needs both now and in the future without requiring fluctuating tax levies. A second benefit o£ the reserve fund is that when the facility maintenance costs are removed from the set of items to be funded by the tax levy, it frees the tax levy to do a more solid and ' � � stable job of supporting the ongoing operating needs of the general fund. Budget Reserves The City has traditionally maintained a prudent level of budget reserves. The budget reserves are required for three reasons. First, because the City does not receive its tax revenues until midyear and year end, the budget reserve provides essential work- ing capital to ensure adequate cash flow. Secondly, budget reserves provide a cushion against unforeseen financial problems. This was most evident several years ago when the level of local ` government aid was reduced significantly in midyear, causing significant financial difficulties for cities who were counting on it for a major portion of their operating expenditures. Thirdly, budget reserves are a major factor in credit ratings. Telecommunications Technoloqy Fund In recent years, the City has taken significant steps to take advantage of new technology to improve the quality and cost ' effectiveness of the City's operations and services. These steps have included the installation of an in-house financial and accounting network system and the installation of a new audio/ visual system for the Council Chambers. In addition, the Police ' Department has plans to install mobile terminals in its squad cars to make information access and transmission faster and easier, and the Engineering Department is moving toward computer ' assisted drafting and an automated geographic data base system to improve the efficiency of its operations. , Although each of these improvements will provide savings and increase effectiveness, they require significant front-end costs. Rather than funding these essentially one-time costs using tax levy revenue, it is more prudent to match these expenditures with a more compatible revenue source. A4