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j�r��'��j�� � ., 2 To: 1Vlayor and City Cout�cil 3 Bi11 Maiinen, City Manager 4 Fra�: Chris Miller, �'inance Direeto �, S Date: May 14, 2007 6 Re: Discussion on City'� Operating Func� Reserve Policy S 9 �nt�QCiuctiQn 10 At �he April 23, 2007 City Cnuncil znee�ing, the Cauncil revised a number of buc�get and 11 �naz�cial po�icies which will help guide the 2008 Budget. The one policy th�at the Counci� felt 12 warrar�ted se�aarate and extended discussian was the City's �perating Fund Resarve Policy. A 13 revised policy is attached in mark�p farm, arad is preceded by a g�neral discussion below. 14 15 Gen�aral Disca�ssiot� 1b Reserves are often�imes are£erred �o as cash, raiz�y day funds, contingency �unds, or fund balance. 17 In maan.y iz�stances these tez-arras ean be used interchangeably. However, £or p��poses of this l$ discussion it's importan� fo define them clearly. Ccxsh �eserves re�er ta the cash and i�vest�nents 19 that �he City �a1ds in le�cal banks and in its i�vesirnent �ortfalio. It is mon�y ihat the City can 20 draw upc�n to �rovide for; day-to-day operations, capital replacem.e�ts, one-time e�pendit�e�, ar 21 uzafareseen circurnstances (eonting�ncies). 4ther gove�m�nts, z�ost �atabl� the State, re£er to 22 it� reserv�s as rainy day funds. 23 24 One furt�e� distinction is nnac�e with regard to Contingency funds. While some gnver�u�a.ents 2S define ti�ern differer�tly, for purpases o£ this discussion, Cantingency �unds are manies t�at ar� 26 ap�aropriated within �he apprnved ann�al budget, but are not earmar�ed fc�r any program ar 27 purpose; ra�her they are set aside �'or �foreseen ar cantingency purposes. By contras�, Cash 28 Reserves typically are nat appropria�ed in the annual b�.dget. They are authorized by separate 29 cou�cil actian when needed. R�cen� exaz�p�es include the �se o£ reservcs �o offset the la�� in 30 state-aid, and to �nance a�ortzon nf the City Hall and Public Waarks build�ng expansion. 31 32 33 34 3S 3b 37 38 The rezaaainder of �his ove�rview is camprised of the �qllowing seetions: 1} Ro�e of cash researv�s 2) Gove�ental best practices a�d o�her eonsiderations 3) Relatiar�ship �etwee� reserves and t1�.e budget Each of i:hese sections is presented b�law.