§ 20-22. City fund balance reserve policy.

(a)

Purpose. The city desires to maintain a prudent level of financial resources to guard its stakeholders against service disruption in the event of unexpected temporary revenue shortfalls or unpredicted one-time expenditures. In addition, this policy is intended to document the appropriate reserve level to protect the city's credit worthiness and provide adequate cash flow based upon the traditional operating cycle. Reserves are accumulated and maintained to provide stability and flexibility to respond to unexpected adversity and/or opportunities and to minimize the costs associated with short-term cash borrowing. Moody's analysis recommends the establishment of a formal reserve policy because they minimize political considerations of adequate reserve levels and keep the municipalities more focused on providing structural balance in their operations.

(b)

Authority. The city council is responsible for the approval of financial policies which establish and direct the operations of the city. The city manager is responsible for carrying out the policy directives of the city council and managing the day-to-day operations of all departments. This policy shall be administered on behalf of the city manager by the city clerk or any future employees assigned to work in the city's finance department.

(c)

Monitoring performance.

(1)

The city will measure its compliance with this policy on an annual basis during the city's budgeting process. During the course of the fiscal year, the city manager shall closely monitor the city's revenues and expenditures to ensure reserves are not being used unless authorized by council. If the target level of reserves is not met at fiscal year-end or is not likely to be met at any point within a three-year time horizon, then during the annual budget process a plan to replenish the reserve levels will be developed by the city manager and city council.

(2)

Periodic review of the targets. At a minimum, during the annual financial planning/budget process, staff shall review the current and three-year projected reserves to ensure that they are appropriate given the economic and financial risk factors the city is subject to.

(d)

Funding the reserves. Funding of reserve targets will generally come from excess revenues over expenditures or one-time revenues.

(e)

Excess of reserves. In the event reserves exceed the maximum balance requirements, at the end of each fiscal year, any excess reserves may be used in the following ways:

(1)

To pay down principle of any debt, bond or other sources of indebtedness the city has acquired;

(2)

Can be transferred to another fund of the city for increasing fund balance or budget overruns from the previous fiscal year; or

(3)

Can be kept in the reserve fund upon vote of the council either to increase the maximum or to allow short-term increases based upon an already approved action plan for the funds.

(f)

Designated reserves. The following fund reserves are utilized by the city:

(1)

General fund reserve; and

(2)

Utility fund capital reserve.

(g)

General fund reserve.

(1)

Operating expenses. The city will maintain a fund balance in the general fund equivalent to, at a minimum, 50 percent of regular ongoing operating expenditures and, at a maximum, 12 months (100 percent) of regular ongoing operating expenditures. For the purposes of this policy, expenses shall be measured by three-year averages by department upon 90 percent fund balance.

(2)

Debt service. In addition to the aforementioned reserve for operating expenses, the city will maintain a minimum level of fund balance in the general fund equal to debt service payments due within the next 12 months.

(h)

Water utility fund capital reserve.

(1)

Operating expenses. The city will maintain a fund balance in the utility fund equivalent to, at a minimum, 50 percent of regular ongoing operating expenditures and, at a maximum, 12 months (100 percent) of regular ongoing operating expenditures. For the purposes of this policy, expenses shall be measured by three-year averages by department upon 90 percent fund balance.

(2)

Capital funding. In addition to the aforementioned reserve for operating expenses, the city will maintain a fund balance in the utility fund capital reserve to, at a minimum, provide for 40 percent of the estimated value of all capital assets of the water utility fund, for the purpose of future replacement.

(3)

Debt service. The city will maintain a minimum level of fund balance in the water utility fund equal to debt service payments due within the next 12 months.

(i)

Emergency/temporary uses of reserves. In the event that the city designates an event as an emergency or temporary occurrence, reserve funds may be used if approved by the mayor and city council.

(1)

Emergency uses are those that occur without notice and will result in reserve funds being transferred to other accounts for longer than one-year (12-month) increments. Upon the affirmative recommendation of the city manager and mayor, the council may approve the use if three of the four councilmembers vote in favor of the use.

(2)

Temporary uses are those that would result in less than a one-year (12-month) increment from the time the funds are transferred until they are fully restored to the reserve account. Tax anticipation notes are an example of this type of temporary use. Upon the recommendation of the city manager, the council may approve the use by simple majority.

(j)

Remediation. At no time in which reserve funds are owed to any account shall the city either decrease or roll back annual ad valorem taxes or decrease any monthly utility rate. The targets below shall be reevaluated and adjusted by the city manager annually, in a manner similar to the illustration shown below.

Reserve	Minimum 2016 Target	Maximum 2016 Target
General fund reserve	$1,544,210.00	$2,845,421.00
Utility fund cap reserve	$4,332,850.00	$5,208,166.00
Total funds	$5,877,060.00	$8,053,587.00

 

(Code 2004, § 36.24; Ord. No. 1717, 12-21-2017)