Fund Reserve PoliciesMasterpiece on the Mississippi
TO: The Honorable Mayor and City Council Members
FROM: Michael C. Van Milligen, City Manager
SUBJECT: Fund Reserve Policies
DATE: August 27, 2013
Dubuque
band
AI- America City
IIIii!
2007 • 2012 • 2013
Budget Director Jennifer Larson is recommending City Council approval of Fund
Reserve Policies.
This policy will ensure that the City maintains adequate fund balances and reserves in
order to:
1. Provide sufficient cash flow for daily financial needs,
2. Secure and maintain bond rating as discussed in the City's debt management
policy,
3. Offset significant economic downturns or revenue shortfalls, and
4. Provide funds for unforeseen expenditures related to emergencies.
The most significant components of the proposed Fund Reserve Policies include the
following:
A. General Fund
The City will maintain a minimum fund balance of at least 10 percent of the
sum of (a) annual operating expenditures not including interfund transfers in
the General Fund less (b) the amounts levied in the Trust and Agency fund
and the Tort Liability Fund. The City may increase the minimum fund balance
by a portion of any operating surplus above the carryover balance of
$200,000 that remains in the General Fund at the close of each fiscal year.
The City may continue to add to the General Fund minimum balance when
additional funds are available until 20 percent of Net General Fund Operating
Cost is reached.
B. Section 8 Fund
The City will maintain fund balance equivalent to any unspent housing
assistance payments received from the U.S. Department of Housing and
Urban Development which will still be available for use for the purpose of
those funds.
C. The reserve for the Sanitary Sewer Utility Operating Fund, the Stormwater
Utility Operating Fund, the Parking Enterprise Operating Fund, the Water
Utility Operating Fund and the Refuse Enterprise Collection Fund shall each
be as follows:
The City will maintain a minimum fund balance of at least 10 percent of the
sum of (a) annual operating expenditures, not including interfund transfers,
less (b) debt service in the Fund (including general obligation debt service the
levies of which the City abates annually). In addition, any bond reserve
required for outstanding debt will be maintained as required by the bond
resolution or City Debt Management Policy, whichever requires the highest
debt reserve to the extent allowed by applicable tax law.
D. The reserve for the Road Use Tax Fund, the Sales Tax Fund and the
Passenger Facility Charge Fund shall be as follows:
The City will maintain any bond reserve required for outstanding debt as
required by the bond resolution or City Debt Management Policy, whichever
requires the highest debt reserve to the extent allowed by applicable tax law.
E. Health Reserve Fund
The City will maintain a minimum fund balance as determined by a consulting
actuary that is based on the actuarial requirements of the State of Iowa, make
good and sufficient provisions for all unpaid claims and other actuarial
liabilities under the terms of the Plan and include appropriate provision for all
actuarial items which ought to be established.
F. Worker's Compensation Reserve Fund
The City will maintain a minimum fund balance to cover medical and
indemnity claims.
G. The reserve for the Dubuque Industrial Center West Tax Increment Financing
Fund, the Greater Downtown Tax Increment Financing Fund and the
Technology Park Tax Increment Financing Fund shall be as follows:
The City will maintain any bond reserve required for outstanding debt as
required by the bond resolution or City Debt Management Policy, whichever
requires the highest debt reserve to the extent allowed by applicable tax law.
Reserve levels will be reviewed annually during the budget process. Any recommended
adjustments to reserve levels will be presented to City Council for its consideration
during the annual budget process.
2
I concur with the recommendation and respectfully request Mayor and City Council
approval.
Michael C. Van Milligan
MCVM:jh
Attachment
cc: Barry Lindahl, City Attorney
Cindy Steinhauser, Assistant City Manager
Teri Goodmann, Assistant City Manager
Jennifer Larson, Budget Director
3
Masterpiece on the Mississippi
TO: Michael C. Van Milligen, City Manager
FROM: Jennifer Larson, Budget Director
SUBJECT: Fund Reserve Policies
DATE: August 26, 2013
Dubuque
blend
AI- America City
IIIii!
2007 • 2012 • 2013
INTRODUCTION
The purpose of this memorandum is to request approval of Fund Reserve Policies.
BACKGROUND
The City of Dubuque has historically adopted a general fund reserve policy as part of
the Fiscal and Budget Policy Guidelines which is adopted each year as part of the
budget process. The proposed Fund Reserve Polices broadens the Fund Reserve
Polices to include more than just the general fund.
Reserves are a prudent fiscal policy and an important credit factor in the analysis of
financial analysis and management. Local governments can experience volatility in their
financial stability due to the economy, natural disasters, terrorist attacks and actions
taken by state government which reduce local government revenues. Sound financial
management includes the practice and discipline of maintaining adequate reserve funds
for known and unknown contingencies. Such contingencies include, but are not limited
to: cash flow requirements, economic uncertainties including downturns in the local,
state or national economy, local emergencies and natural disasters, loss of major
revenue sources, unanticipated operating or capital expenditures, uninsured losses, tax
refunds, future capital projects, vehicle and equipment replacement, and capital asset
and infrastructure repair and replacement.
DISCUSSION
This policy is created in consideration of unanticipated events that could adversely
affect the financial condition of the City and jeopardize the continuation of necessary
public services. This policy will ensure that the City maintains adequate fund balances
and reserves in order to:
1. Provide sufficient cash flow for daily financial needs,
2. Secure and maintain bond rating as discussed in the City's debt management
policy,
3. Offset significant economic downturns or revenue shortfalls, and
4. Provide funds for unforeseen expenditures related to emergencies.
The most significant components of the proposed Fund Reserve Policies include the
following:
A. General Fund
The City will maintain a minimum fund balance of at least 10 percent of the
sum of (a) annual operating expenditures not including interfund transfers in
the General Fund less (b) the amounts levied in the Trust and Agency fund
and the Tort Liability Fund ( "Net General Fund Operating Cost "). The City
may increase the minimum fund balance by a portion of any operating surplus
above the carryover balance of $200,000 that remains in the General Fund at
the close of each fiscal year. The City may continue to add to the General
Fund minimum balance when additional funds are available until 20 percent
of Net General Fund Operating Cost is reached.
B. Section 8 Fund
The City will maintain fund balance equivalent to any unspent housing
assistance payments received from the U.S. Department of Housing and
Urban Development which will still be available for use for the purpose of
those funds.
C. Sanitary Sewer Utility Operating Fund
The City will maintain a minimum fund balance of at least 10 percent of the
sum of (a) annual operating expenditures for Sanitary Sewer not including
interfund transfers less (b) debt service in the Sanitary Sewer Operating Fund
(including general obligation debt service the levies of which the City abates
annually with revenues from the Sanitary Sewer Utility). In addition, any bond
reserve required for outstanding debt will be maintained as required by the
bond resolution or City Debt Management Policy, whichever requires the
highest debt reserve to the extent allowed by applicable tax law.
D. Stormwater Utility Operating Fund
The City will maintain a minimum fund balance of at least 10 percent of the
sum of (a) annual operating expenditures for Stormwater not including
interfund transfers less (b) debt service expense in the Stormwater Operating
Fund (including general obligation debt service the levies of which the City
abates annually with revenues from the Storm Sewer Utility). In addition, any
bond reserve required for outstanding debt will be maintained as required by
the bond resolution or City Debt Management Policy, whichever requires the
highest debt reserve to the extent allowed by applicable tax law.
E. Parking Enterprise Operating Fund
The City will maintain a minimum fund balance of at least 10 percent of the
sum of (a) annual operating expenditures for Parking not including interfund
transfers less (b) debt service expense in the Parking Operating Fund
(including general obligation debt service the levies of which the City abates
annually with revenues from the Parking Enterprise). In addition, any bond
reserve required for outstanding debt will be maintained as required by the
bond resolution or City Debt Management Policy, whichever requires the
highest debt reserve to the extent allowed by applicable tax law.
F. Water Utility Operating Fund
The City will maintain a minimum fund balance of at least 10 percent of the
sum of (a) annual operating expenditures for Water not including interfund
transfers less (b) debt service expense in the Water Operating Fund
(including general obligation debt service the levies of which the City abates
annually with revenues from the Water Utility). In addition, any bond reserve
required for outstanding debt will be maintained as required by the bond
resolution or City Debt Management Policy, whichever requires the highest
debt reserve to the extent allowed by applicable tax law.
G. Refuse Enterprise Collection Fund
The City will maintain a minimum fund balance of at least 10 percent of the
sum of (a) annual operating expenditures for Refuse Collection not including
interfund transfers less (b) debt service expense in the Refuse Collection
Fund (including general obligation debt service the levies of which the City
abates annually with revenues from the Refuse Enterprise). In addition, any
bond reserve required for outstanding debt will be maintained as required by
the bond resolution or City Debt Management Policy, whichever requires the
highest debt reserve to the extent allowed by applicable tax law.
H. Road Use Tax Fund
The City will maintain any bond reserve required for outstanding debt as
required by the bond resolution or City Debt Management Policy, whichever
requires the highest debt reserve to the extent allowed by applicable tax law.
I. Sales Tax Fund
The City will maintain any bond reserve required for outstanding debt as
required by the bond resolution or City Debt Management Policy, whichever
requires the highest debt reserve to the extent allowed by applicable tax law.
J. Passenger Facility Charge Fund
The City will maintain any bond reserve required for outstanding debt as
required by the bond resolution or City Debt Management Policy, whichever
requires the highest debt reserve to the extent allowed by applicable tax law.
K. Health Reserve Fund
The City will maintain a minimum fund balance as determined by a consulting
actuary that is based on the actuarial requirements of the State of Iowa, make
good and sufficient provisions for all unpaid claims and other actuarial
liabilities under the terms of the Plan and include appropriate provision for all
actuarial items which ought to be established.
L. Worker's Compensation Reserve Fund
The City will maintain a minimum fund balance to cover medical and
indemnity claims.
M. Dubuque Industrial Center West Tax Increment Financing Fund
The City will maintain any bond reserve required for outstanding debt as
required by the bond resolution or City Debt Management Policy, whichever
requires the highest debt reserve to the extent allowed by applicable tax law.
N. Greater Downtown Tax Increment Financing Fund
The City will maintain any bond reserve required for outstanding debt as
required by the bond resolution or City Debt Management Policy, whichever
requires the highest debt reserve to the extent allowed by applicable tax law.
O. Technology Park Tax Increment Financing Fund
The City will maintain any bond reserve required for outstanding debt as
required by the bond resolution or City Debt Management Policy, whichever
requires the highest debt reserve to the extent allowed by applicable tax law.
Reserve levels will be reviewed annually during the budget process. Any recommended
adjustments to reserve levels will be presented to City Council for its consideration
during the annual budget process.
RECOMMENDATION
I respectfully recommend the adoption of the attached fund reserve policies.
JML
Attachment
cc: Barry Lindahl, City Attorney
Cindy Steinhauser, Assistant City Manager
Teri Goodmann, Assistant City Manager
Kenneth TeKippe, Finance Director
City of Dubuque
Fund Reserve Policies
1. BACKGROUND:
Reserves, rainy -day funds, or contingency funds are a prudent fiscal policy and an
important credit factor in the analysis of City financial condition and management. Local
governments can experience volatility in their financial stability due to the economy,
natural disasters, terrorist attacks and actions taken by state government which reduce
local government revenues. Sound financial management includes the practice and
discipline of maintaining adequate reserve funds for known and unknown contingencies.
Such contingencies include, but are not limited to: cash flow requirements, economic
uncertainties including downturns in the local, state or national economy, local
emergencies and natural disasters, loss of major revenue sources, unanticipated
operating or capital expenditures, uninsured losses, tax refunds, future capital projects,
vehicle and equipment replacement, and capital asset and infrastructure repair and
replacement. The City has had a general fund reserve policy adopted as part of the
Budget and Fiscal Policy Guidelines adopted each year as part of the budget process.
The establishment of written prudent financial reserve policies is important to ensure the
long -term financial health of the City.
2. DEFINITIONS:
The following definitions will be used in reporting activity in governmental funds across
the City. The City may or may not report all fund types in any given reporting period,
based on actual circumstances and activity.
The general fund is used to account for all financial resources not accounted for
and reported in another fund.
Special revenue funds are used to account and report the proceeds of specific
revenue sources that are restricted or committed to expenditures for specific
purposes other than debt service or capital projects.
Debt Service funds are used to account for all financial resources restricted,
committed or assigned to expenditure for principal and interest.
Capital project funds are used to account for all financial resources restricted,
committed or assigned to expenditure for the acquisition or construction of capital
assets.
Permanent funds are used to account for resources restricted to the extent that
only earnings, and not principal, may be used for purposes that support the City
purposes.
Fund balance will report in governmental funds under following categories using the
definitions provided by GASB Statement Number 54:
City of Dubuque
Fund Reserve Policies
Nonspendable fund balance includes amounts that cannot be spent because they
are either (a) not in spendable form or (b) legally or contractually required to be
maintained intact. Nonspendable amounts will be determined before all other
classifications and consist of the following items (as applicable in any given fiscal
year):
a. The City will maintain a fund balance equal to the balance of any long -term
outstanding balances due from others (including other funds of the City)
b. The City will maintain a fund balance equal to the value of inventory
balances and prepaid items (to the extent that such balances are not offset
with liabilities and actually result in fund balance)
c. The City will maintain a fund balance equal to the corpus (principal) of any
permanent funds that are legally or contractually required to be maintained
intact
d. The City will maintain a fund balance equal to the balance of any land or
other nonfinancial asset held for sale.
Restricted fund balance includes amounts that can be spent only for the specific
purposes stipulated by constitution, external resource providers, or through
enabling legislation.
Committed fund balance includes amounts that can be used only for the specific
purposes determined by a formal action of the City's highest level of decision -
making authority (i.e., City Council). Commitments will only be used for specific
purposes pursuant to a formal action of the City Council. A majority vote is
required to approve a commitment and to remove a commitment.
Assigned fund balance includes amounts intended to be used by the City for
specific purposes but do not meet the criteria to be classified as restricted or
committed. In government funds, other than general fund, assigned fund balance
represents the remaining amount that is not restricted or committed. The City
Council delegates to the City Manager, Budget Director or Finance Director the
authority to assign amounts to be used for specific purposes, per resolution 195-
11. Such assignments cannot exceed the available (spendable, unrestricted,
uncommitted) fund balance in any particular fund.
Unassigned fund balance includes the residual classification of the City's general
fund and includes all spendable amounts not contained in the other classifications.
In other funds, the unassigned classification should be used only to report a deficit
balance from overspending for specific purposes for which amounts had been
restricted, committed, or assigned.
City of Dubuque
Fund Reserve Policies
3. POLICY:
The City utilizes a variety of accounting funds for accounting and budgeting for revenues
and expenditures of the City. Appropriations lapse at each fiscal year -end. The City
Council authorizes continued appropriations for certain incomplete capital projects, other
one -time projects and services which have not been billed. Remaining dollars left in each
fund that are undesignated and unencumbered constitute available reserves of the City. It
is appropriate that reserve policies for the City be established for each of the various
funds, that the purpose of these reserves be designated, and that dollars available in
excess of the reserve amounts be appropriately and effectively utilized.
This policy is created in consideration of unanticipated events that could adversely affect
the financial condition of the City and jeopardize the continuation of necessary public
services. This policy will ensure that the City maintains adequate fund balances and
reserves in order to:
1. Provide sufficient cash flow for daily financial needs,
2. Secure and maintain bond rating as discussed in the City's debt management
policy,
3. Offset significant economic downturns or revenue shortfalls, and
4. Provide funds for unforeseen expenditures related to emergencies.
This policy and the procedures promulgated under it supersede all previous regulations
regarding the City's fund balance and reserve policies. This policy governs the City's
reserves on a cash basis as of June 30 of each year as follows:
A. General Fund
The City will maintain a minimum fund balance of at least 10 percent of the sum of (a)
annual operating expenditures not including interfund transfers in the General Fund
less (b) the amounts levied in the Trust and Agency fund and the Tort Liability Fund
( "Net General Fund Operating Cost "). The City may increase the minimum fund
balance by a portion of any operating surplus above the carryover balance of
$200,000 that remains in the General Fund at the close of each fiscal year. The City
may continue to add to the General Fund minimum balance when additional funds are
available until 20 percent of Net General Fund Operating Cost is reached. Bond
Debt Service Reserve Funds will be held pursuant to the bond resolution that
authorized said reserve, and shall not be held in the General Fund. If a Bond Debt
Service Reserve Fund is created by the City but not required by any particular bond
resolution, then said reserve shall be held in the bond reserve fund directed by the
City Council, and not the General Fund.
B. Section 8 Fund
The City will maintain fund balance equivalent to any unspent housing assistance
payments received from the U.S. Department of Housing and Urban Development
which will still be available for use for the purpose of those funds.
C. Sanitary Sewer Utility Operating Fund
3
City of Dubuque
Fund Reserve Policies
The City will maintain a minimum fund balance of at least 10 percent of the sum of (a)
annual operating expenditures for Sanitary Sewer not including interfund transfers
less (b) debt service in the Sanitary Sewer Operating Fund (including general
obligation debt service the levies of which the City abates annually with revenues from
the Sanitary Sewer Utility). In addition, any bond reserve required for outstanding debt
will be maintained as required by the bond resolution or City Debt Management
Policy, whichever requires the highest debt reserve to the extent allowed by
applicable tax law.
D. Stormwater Utility Operating Fund
The City will maintain a minimum fund balance of at least 10 percent of the sum of (a)
annual operating expenditures for Stormwater not including interfund transfers less (b)
debt service expense in the Stormwater Operating Fund (including general obligation
debt service the levies of which the City abates annually with revenues from the
Storm Sewer Utility). In addition, any bond reserve required for outstanding debt will
be maintained as required by the bond resolution or City Debt Management Policy,
whichever requires the highest debt reserve to the extent allowed by applicable tax
law.
E. Parking Enterprise Operating Fund
The City will maintain a minimum fund balance of at least 10 percent of the sum of (a)
annual operating expenditures for Parking not including interfund transfers less (b)
debt service expense in the Parking Operating Fund (including general obligation debt
service the levies of which the City abates annually with revenues from the Parking
Enterprise). In addition, any bond reserve required for outstanding debt will be
maintained as required by the bond resolution or City Debt Management Policy,
whichever requires the highest debt reserve to the extent allowed by applicable tax
law.
F. Water Utility Operating Fund
The City will maintain a minimum fund balance of at least 10 percent of the sum of (a)
annual operating expenditures for Water not including interfund transfers less (b) debt
service expense in the Water Operating Fund (including general obligation debt
service the levies of which the City abates annually with revenues from the Water
Utility). In addition, any bond reserve required for outstanding debt will be maintained
as required by the bond resolution or City Debt Management Policy, whichever
requires the highest debt reserve to the extent allowed by applicable tax law.
G. Refuse Enterprise Collection Fund
The City will maintain a minimum fund balance of at least 10 percent of the sum of (a)
annual operating expenditures for Refuse Collection not including interfund transfers
less (b) debt service expense in the Refuse Collection Fund (including general
obligation debt service the levies of which the City abates annually with revenues from
the Refuse Enterprise). In addition, any bond reserve required for outstanding debt
will be maintained as required by the bond resolution or City Debt Management
Policy, whichever requires the highest debt reserve to the extent allowed by
applicable tax law.
City of Dubuque
Fund Reserve Policies
H. Road Use Tax Fund
The City will maintain any bond reserve required for outstanding debt as required by
the bond resolution or City Debt Management Policy, whichever requires the highest
debt reserve to the extent allowed by applicable tax law.
I. Sales Tax Fund
The City will maintain any bond reserve required for outstanding debt as required by
the bond resolution or City Debt Management Policy, whichever requires the highest
debt reserve to the extent allowed by applicable tax law.
J. Passenger Facility Charge Fund
The City will maintain any bond reserve required for outstanding debt as required by
the bond resolution or City Debt Management Policy, whichever requires the highest
debt reserve to the extent allowed by applicable tax law.
K. Health Reserve Fund
The City will maintain a minimum fund balance as determined by a consulting actuary
that is based on the actuarial requirements of the State of Iowa, make good and
sufficient provisions for all unpaid claims and other actuarial liabilities under the terms
of the Plan and include appropriate provision for all actuarial items which ought to be
established.
L. Worker's Compensation Reserve Fund
The City will maintain a minimum fund balance to cover medical
M. Dubuque Industrial Center West Tax Increment Financing Fund
The City will maintain any bond reserve required for outstanding
the bond resolution or City Debt Management Policy, whichever
debt reserve to the extent allowed by applicable tax law.
and indemnity claims.
debt as required by
requires the highest
N. Greater Downtown Tax Increment Financing Fund
The City will maintain any bond reserve required for outstanding debt as required by
the bond resolution or City Debt Management Policy, whichever requires the highest
debt reserve to the extent allowed by applicable tax law.
0. Technology Park Tax Increment Financing Fund
The City will maintain any bond reserve required for outstanding debt as required by
the bond resolution or City Debt Management Policy, whichever requires the highest
debt reserve to the extent allowed by applicable tax law.
Reserve levels will be reviewed annually during the budget process. Any recommended
adjustments to reserve levels will be presented to City Council for its consideration during
the annual budget process.
City of Dubuque
Fund Reserve Policies
4. COMMITMENTS AND ASSIGNMENTS OF FUND BALANCE:
A. Committed Fund Balance
Fund balance may be committed to specific purposes by the City Council. It is the City
Council's policy that commitments of fund balance for a fiscal year must be adopted
by resolution prior to fiscal year end. Amounts that have been committed by the City
Council cannot be used for any other purposes unless the City Council adopts
another resolution to remove or change the constraint.
B. Assigned Fund Balance
The General Fund balance may be assigned for amounts the City Council intends to
use for a specific purpose. It is the City Council's policy that assignments of fund
balance for a fiscal year must be approved by City Council which can be after year-
end based on final figures for the reporting period. Any changes to assignments must
also be approved by the City Council.
Fund balance classifications depict the nature of the net resources that are reported in a
governmental fund. An individual governmental fund may include nonspendable
resources and amounts that are restricted, committed, or assigned, or any combination of
those classifications. The general fund may also include an unassigned amount.
Encumbering amounts for specific purposes for which resources have already been
restricted, committed or assigned should not result in separate display of encumbered
amounts. Encumbered amounts for specific purposes for which amounts have not been
previously restricted, committed or assigned, will be classified as committed or assigned,
as appropriate, based on the definitions and criteria set forth in GASB Statement No. 54.
It is the City Council's policy to spend classified fund balance in the following order when
amounts in more than one classification are available for a particular purpose:
1. Restricted Fund Balance — amounts constrained to specific purpose by their
providers through constitutional provisions or enabling legislation. Examples
include grants, bond proceeds and pass- through revenue from other levels of
government.
2. Committed Fund Balance — amounts constrained to specific purpose by
resolution of the City Council.
3. Assigned Fund Balance — amounts in the General Fund which are intended to
be used for a specific purpose, approved by City Council.
4. Unassigned Fund Balance — amounts available for any purpose in the General
Fund.