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HomeMy WebLinkAbout5. Financial Management Policies V , CITY OF SHAKOPEE Memorandum T0: Mayor and Council Mark McNeill, City Administrator FROM: Gregg Voxland, Finance Director SUBJ: Financial Policies DATE: April 25, 2008 Introduction & Background Attached is a first draft of financial management policies for Council discussion. The purpose is to document what we do for financial management and communicate it to future Councils, staff, investors, rating agencies and the public. Mostly this is just writing down what is currently being done. One bad aspect of this process is going through it when we are facing a difficult budget for next year and trying to separate what should be done from a long term policy perspective from the current fiscal pressures. The good aspect is discussing these policies when we are preparing for next years budget. The policies as proposed are a combination of what we are current doing and policies from three other cities. The intention is to walk through the attached to get council feed back and input for future revisions. Action Discuss and give staff direction Gregg Voxland Finance Director H:\PinanCe\docs\ CITY OF SHAKOPEE FINANCIAL MANAGEMENT POLICIES City of Shakopee has an important responsibility to its citizens to plan the adequate funding of services desired by the public, including the provision and maintenance of public facilities, to manage municipal finances wisely, and to carefully account for public funds. The City strives to ensure that it is capable of adequately funding and providing local government services needed by the community. The City will maintain or improve its infrastructure on a systematic basis to insure its citizens will maintain quality neighborhoods. In order to achieve this purpose, this plan has the following objectives for the City's fiscal performance: 1. To protect the Council's policy-making ability by ensuring that ir~~portant decisions are not controlled by financial problems or emergencies. 2. To enhance the Council's policy-making ability by providing accurate information on the cost of various authority or service levels. 3. To assist sound management of the City government by providing accurate and'tirnely information on financial condition. 4. To provide sound principles to guide the important decisions of the Council and of management which have significant fiscal impact. 5. To set forth-operational principals which minimize'the cost of local government, to the extent consistent with services desired by the public, and which minimize financial risk. 6.7o employ revenue policies and forecasting tools to prevent undue or unbalanced reliance on certain revenues, especially property taxes, which distribute the cost of municipal services fairly, and which provide adequate fru~ds operate desired programs. 7. To provide essential public facilities anti ~~revent deterioration of the City's infrastructure including its varioas facilities. 8. To protect and enhance the City's credit rating and prevent default on any municipal debts. 9. Ensure the legal use and {protection of all City funds through a good system of financial and accounting controls. 10. Record expenditures in a manner, which allocates to current taxpayers and/or users the cost of providing current services. To achieve these objectives the following fiscal policies have been adopted by the Council to guide the City's budgeting and financial planning process. Each fiscal policy section includes the purpose and a description. I. OPERATING BUDGET POLICIES A. Purpose The operating budget policies ensure that the City's annual operating expenditures are consistent with past expenditures and respond to long-term objectives rather than short-term benefits. The policies allow the City to maintain a stable level of service, expenditures and tax levies over time. These policies are most critical to programs funded with property tax revenue because accommodating large fluctuations in this revenue source can be difficult. B. Policy The City will always adopt a balanced operating budget for the General Fund. The City will pay for current expenditures with current revenues. The City will avoid balancing current revenues with funds necessary for future expenses. The City will not budget to accrue future revenues. The City will avoid postponing expenditures, rolling over short-term debt and using fund balance to balance the operating budget. To protect against unforeseen events, the City will budget a contingency and maintain fund balance according to the City's policies. , The City will apportion its administrative and general governrl~ent'costs to all its funds as appropriate and practical. These charges will' k~e identified in the annual budget. -The City staff will monitor revenues and departmental expenditures to adhere to their budgeted amounts. Line items within an activity may be over spent asRlong as the total division budget is not over spent. Only with Council approval can a division be overspent and only if funding is available. Department heads are responsible for controlling their respective operations to comply with the budget and unauthorized commitments or commitments exceed the budget are the responsibility of the person` mahinc~ the commitment. II. REVENUE:POLICIES. A. Purpose The revenue policies are desiy, red to ensure 1) diversified and stable revenue sources, 2) adequate longterm funding by using specific revenue sources to fund related programs and services, and 3) funding levels to accommodate all City services and programs equitably. B. Policy The City will maintain a diversified and stable revenue system in order to avoid short-term fluctuations in a single revenue source. The City will conservatively estimate its annual revenues by an objective, analytical process. All existing and potential revenue sources will be re-examined annually. The City will use one-time or special purpose revenue for capital expenditures or for expenditures required by the revenue, and not to subsidize recurring personnel, operation and maintenance costs. The Gity will establish all fees and charges at a level related to the cost of providing the services,. or as adjusted for particular program goals. Each year, the City will review the full cost of activities supported by fees and charges to identify the impact of inflation and other cost increases and .will review these fees and charges along with resulting net property tax costs with the Council at budget time. The City will seek a balanced tax base through support of a sound mix of residential, commercial, and industrial development. The City will set enterprise fund fees at a level that fully supports the total direct and indirect cost of the activity (net of any grants or similar revenues), including depreciation of capital assets and debt service, to maintain a positive cash f{ow and provide adequate working capital. Replacement (or bonding for replacement) of enterprise infrastructure will be paid for fi-am accumulated (or annual) earnings of the particular fund. The City will offset reduced revenues with reduced expenditures II1. EXPENDITURE POLICIES A. Purpose The expenditure policies are designed to ensure proper funding of services. B. Policy The City will adopt and maintain a balanced budget in which expeniJitures will not exceed reasonable estimated resources and revenue. The City will pay for all current operation and maintenance expenses from current revenue sources. The operating budget will provide for the ader,~rate maintenance of capital assets and equipment. The City will maintain a budgetary control system, which will enable it to adhere to the adopted budget.. This includes a centralized record..keeping system to be adhered to by all programs and activities receiving annual appropriations: Proposed major budgeted expenditures such as new positions, equipment acquisitions, and'capital improvements will have prior Council approval. The Finance Officer swill prepare and maintain at least quarterly financial reports comparing actual revenues and expenditures to budgeted amounts. The City will develop and implement an effective risk management program to minimize losses and reduce costs according to the City's risk management policies. The City will cooperate and coordinate with other governmental agencies in an effort to provide maximum services at minimum costs. IV. ACCOUNTING, AUDITING AND FINANCIAL REPORTING POLICY A. Purpose The accounting, auditing and financial reporting policies are designed to maintain a system of financial monitoring, control and reporting for all operations and funds in order to provide effective means of ensuring that overall City goals and objectives will be met and to assure the City's residents and investors that the City is well managed and fiscally sound. B. Policy The City will adhere to a policy of full and open public discourse of all financial activity. The proposed budget will be prepared in a manner to maximize its understanding by citizens and elected officials. Copies of financial documents will be made available to all interested parties. Opportunities will be provided for full citizen participation prior to adopting the budget. The City will maintain its accounting records and report on its financial' condition and results of operations in accordance with City, State and Federal law and regulations, and Generally Accepted Accounting Principals (GAAP), and standards established by,the Governmental Accounting. Standard Board (GASB)_ Budgetary reporting will he in accordance with City and State budget laws. An independent firm of certified public accountants will annually perform a financial and compliance audit of the City's financial statements. Their,opinions will be contained in the City's Comprehensive Annual Financial Report (CAFR). As an additional independent confirmation. ~f the quality of the Gity's financial reporting, the City will annually seek to obtain the Government finance Officers Association Certificate of Achievement for Excellence in Financial Reporting.; The CAFR will he.presented in a way designed to communicate with citizens about the'financial affairs of the City. V. INVESTMENT POLICIES A. Purpose The investment policies are cfesignF~d #o legally maximize the return on the City's idle funds. B. Policy The City will regularly analyze its cash flow needs of all funds. The City wilt collect, disburse,. and deposit funds on a regular basis. The City will pool cash. from its different funds and invest the idle funds with compliance to state and federal laws at the highest rate of return possible, while maintaining a diversified investment portfolio. Interest earnings and market value adjustments will be credited to the source of the invested monies at the end of each quarter based on the average cash balances during that quarter. The General Fund will receive investment earnings to offset the cost of investment managers and safe keeping fees.. The Finance Officer will provide at least quarterly investment information and results to the Council. VI. FUND BALANCE POLICIES A. Purpose The purpose of the City's fund balances are to provide 1) a stable funding source for expenditures that fluctuate significantly each year, for example equipment acquisitions and replacements, 2) working capital to maintain a sufficient cash flow, and 3) a stable or improved credit rating. B. Policy The City's goal Is to maintain a General Fund fund balance of 40 to 45; percent of the General Funds operating budget for working capital to provide cash flow between its two semi-annual state aid and tax payments (June and December). At the end of the fiscal year, if the General Fund fund balance i5_over 45% of next year's operating budget, the remaining will be designated for a specific use or transferred to other funds for the funding of future improvement projects, equipment purchases, or as approved by the Council The Capital Fund will receive any fund balances remaining;ir~ any debt service fund once the debt is fully retired. VI1. DEBT POLICIES A. Purpose The debt policies ensure that the City's debt 1) does not weaken the City's financial structure; and 2) provide limits on debt to avoid problems in servicing debt. This policy is critical for maintaining the best possible credit rating. B. Policy The City will not use long-term dept to pay for current operations. The'City will avoid the issuance of short-term debt, such as, Budget, Tax and Revenue Anticipation Notes. The City will confine long-term borrowing to capital improvements, equipment or projects that have a life of more than 5 years and cannot be financed from current revenues. The City will use special assessments, revenue bonds, and/or any other available self-liquidating debt measures instead of general obligation bonds where and when possible, applicable and practical The City will pay back debt within a period not to exceed the expected life of the project. The City will not exceed 2 percent of-the market value of taxable property for genera{ obligation debt per state statutes. The City will maintain good communications with bond rating agencies about its financial condition and will follow a policy of full disclosure in every financial report and bond prospectus. The City will comply with Securities Exchange Commission (SEC) reporting requirements. The City will refinance or call any debt issue when beneficial for future savings. The term of tax supported debt such as building bonds shall not exceed 20 years unless there are extraordinary reasons. Debt supported by specia{ assessments shall have a term of ten years of less depending on the size of the assessments. VIII. CAPITAL EQUIPMENT POLICIES A. PURPOSE The purpose of the City's capital equipment program is'to plan for the replacement of obsolete equipment and the purchase of new items without implementing significant changes in the tax levy. B. POLICY The City will plan for the purchase of any r~~obile;equipment costing,over $20,000 and a life of 1 year or more as part of the City's five-year capital equipment plan. The City will plan the capital equipment program to assure thatfunds remain in a capital equipment fund to accrue interest and use its fund balance to provide a revenue source for the fund. The City will anticipate equipment replacements and additions based on realistic asset life expectancies and cash balances: The City will project any future operating costs of purchases into the upcoming operating budgets. For example, the addition of;park equipment might require more maintenance expenditures in future years.. The City will maintain its assets to protect its capita( investment and to minimize future capital expenditures. The City will use the least.: expensive financing method for all capital equipment purchases including multiple cost estimates and bids when appropriate and required by law. IX. CAPITAL IMPROVEMENT PROGRAM POLICIES A. PURPOSE The purpose of the capital improvement policy is to plan for the construction, replacement and maintenance of the City's infrastructure with as little impact to City funds as possible. B. POLICY The City will develop amulti-year plan for capital improvements and update it annually. The City will identify the estimated cost and potential funding sources for each capital project. The City will coordinate development of the capital improvement budget with the development of the operating budget. Future operating costs associated with new capital improvements will be projected and included in the operating budget. The City will use inter-governmental assistance to finance those capital improvements that are consistent with the capital improvement plan and City priorities. The City will maintain all its assets at a level adequate to protect the Gity's and its citizens' capital investment and to minimize future maintenance and replacement costs. Federal, State and other intergovernmental and private funding'sources Qf a special revenue nature shall be sought out and used as available to assist in financing capital improvements. X. RISK MANAGEMENT POLICIES A. PURPOSE The risk management policy assures proper insurance coverage.. of City assets while minimizing risk and cost. B. POLICY Insurance policies wiA be analyzed regularly to assure proper coverage and deductibles on City assets. The City will maintain the`; highest deductible amount; considered prudent in light of the relationship between the cost of insr~ranee and the City's ability to sustain the loss.