05-1187ITY
Presented by
Council File # � S �� a 7
Green Sheet # � a°� ���
RESOLUTION
SAINT PAUL, MINNESOTA �g
,
Whereas, Saint Paul elected officials and staff have managed the City's budget well; and
Whereas, as a trend in the early to mid 1990s, revenue collections exceeded budget estimates and actual
spending had been less than budget; and
Whereas, this practice and record of annual revenues exceeding annual spending led to growth in fund balances
in the City's General Fund during this period; and
Whereas, in the late 1990s and early 2000s, the City's budget development strategy applied additional amounts
of the General Fund's fund balances as a financing source for the following year's adopted budget, consciously
spending down the reserve in lieu of levying property tas increases; and
Whereas, the current dollar level of general fund fund balance indicates that a revised strategy to curtail the
spend down of fund balance and set in place some specific pazameters for levels and use of fund balance is
reasonable;and
Whereas, city management recognizes that no formal policy has been adopted to serve as a guide for fund
balances as a whole, and, no city policy governs what level of fund balances may be applied to finance budgets;
and
Whereas, bond rating agencies and the City's fiscal advisor have noted that a measure of sound fiscal
management is displayed by researching, creating and following specific city financial policies; and
Whereas, city management should continue the City's respect of sound fiscal management, follow the
recommendations of national bond rating organizations and put in place a policy for the use of fund balances;
So, therefore, upon the recommendation of the Mayor;
Be it resolved, that the attached "Fund Balance Policy' will be implemented to establish specific City goals that
will serve as a guide for future decisions regazding fund balances as a whole and, in particular, what level of
fund balances may be applied to finance fuhxre operating budgets.
Yeas Nays Absent Requested Off�an�ervices
✓
✓
✓ Approv Fiaan 1 Services:
✓ a
✓
✓
✓
Adopted by Council: Date
Adoption Certified by Council Secrefary
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App�
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Form Approve by City A�torne�
By: ttia-- � V �i,�
by Mayor for ubmission to Council
OS- 118�
� Green Sheet Green Sheet Green Sheet Green Sheet Green Sheet Green Sheet �
FS — FinancialSe�vices
Date initia'
13DEC-05
Green Sheet NO: 3029074
Confact Person 8 Phone:
Matt Smith
26G$796
Must Be on Councii Aoen
ContractType:
RE-RESOLUTION
� ,
Assign
Number
For
Routing
Order
Total # of Signature Pages _(Clip All Locations for Signature)
0 in cial rvi
1 in " I 'c entDirect r
2 Afkome
3 a or's Office Ma odA ' tant "
4 ouncil
5 itv Clerk Ci Qerk
Action Requested: � �-
Signatures on the attached resolufion adopting and implementing a"Fund Balance Policy" to.serve as a guide for futuce decisions.
wa6ons: qppro�e (A) or Reject (R):
Planning Commission
CIB Committee
Cidl Service Commission
Questions:
1. Has this persoNfirtn e�er Hrorked under a contract for this department?
Yes No
2. Has this persoNfirm e�er been a city employee?
Yes No
3. Does this persoNfirm possess a skill not normaliy possessed by any
current city employee?
Yes No
Expiain all yes answers on separate sheet and attach to green sheet
Initiating Problem, Issues, Opportuniry (Who, What, When, Where, Why):
Ciry management had no formal policy regarding ihe level aud use of fund balance.
AdvantageslfApproved:
The Ciry will have a foimal fund balance policy.
Disadvantaaes If Approved:
None.
DisadvanWges It Not Approved:
Ciry management will not have a formal guide for the level and use of fund balance.
Transaction:
Fundinp Source:
Finan cial Information:
(Explain)
CosURevenue Budgeted:
Activity Number:
December 13, 2005 1:01 PM Page 1
aS- !t 87
General Fund Fund Balance Policy
St. Paul recognizes the importance of maintaining an appropriate level of fund balance. Sound fiscal
mana�ement of St. Paul's general fund operating budget is made more secure by establishing city goais
re�arding the size and use of the annual general fund balances. This policy provides two goals and
measures for determining the appropriate fund balance. The security factor must be met before the
dependence factor can be applied. The City will strive to meet these goals.
Security. Ensure that, at no time during budget preparation, the amounts remaining in current year
end ex�Sected fund balance (defined as the prior year's known fund balance amount less the amount
designated for application to the current yeaz budget) be allowed to be less than 15% of the next year's
planned budget for the General Fund and that part of the Library Agency formerly in the General
Fund, as a minimum. As economic conditions warrant, an amount larger than this shalY be
maintained. This will be applied to cash flow, revenue reserves and insurance and liability needs, or be
available in the time of emergencies.
The cunent fund balance meets or exceeds the 15% bench mark, and the intent is to maintain that
level. If the fund balance level falls below the 15% threshold due to reasons unexpected today, a
replenishment plan will be developed.
2. Dependence. In building the next year's pianned budget, the percentage of total annual budget
financing that can come from fund balances will not exceed 5% of the planned budget.
General Debt Service Fund Fund Balance Policy
The City shall maintain an amount equal to 7.5% of the annual debt service (principal and interest) in
the next budget year as a General Debt Service Fund reserve, to provide for:
• potential tax delinquencies in lieu of a mandatory 5% over-levy, as required by state law; and
• a 2.5% reserve for revenue shortfalls and unforeseen expenditures in the General Debt Service
Fund.
2. in accordance with the City historical practice of certifying tas levies for general obligation bond
issues, the City shall establish and maintain a designated fund balance reserve for the first kalf of the
subsequent yeaz's debt service. This reserve is required to include an amount necessazy to fund the
pending bond sales estimated current interest payment and subsequent year requirement.
3. In addition, the City shall establish and maintain a designated fund balance reserve for reserves
required by bond indentures, covenants, ordinances and other debt obligations.
The City shall also establish and maintain a designated fund balance reserve for net unrealized gains
or losses in an amount determined by GASB 31.
A Development Process for Special Funds Fund Balance Policy
Purpose:
Develop a process to update City of 3aint Paul fund balance/cash flow policies for first, City Special Funds
and the remaining City Debt service funds, and later, the Library Agency funds, Housing and
Redevelopment Authority funds, Regional Water Services fixnds and the River Centre Visitor Authority
funds, which takes into consideration the complexities and unique circumstances associated with each
_fiu�d.. .. _ _ - - - -
Backgroun$:
Fund balance and cash flow policies were most recently adopted by City Council in 1990. Those policies
provide a sound framework for fund management. However, given the changes over the last 15 yeazs
regarding generaily accepted accounting principles, the evolution of existing special funds and updated _
guidance from rating agencies regarding best practices for fund management, it is appropriate to review
and update the existing policies where necessary.
General Principles:
• Develop general guidelines for minimum cash requirements and unreserved fund balance for each
category of funds (governmental, enterprise, intemal service).
• Consider all potential elements of a fund balance/cash policy:
• Fund balance floor (minimum acceptable fund balance)
• Minimum ready cash balance requirements
• Policies for drawing down excess fund balances (percentage cap on amount of annual draw,
permissible uses, etc.)
• Requirements for establishing reserved/unreserved fund balances
• Policies for replenishing reserves once the reserves are utilized
• Determine how funds will be monitored relative to the fund balance policy (annual review,
informally, other opfions)
• Evaluate individual funds to determine if special considerations aze wananted for a fund based on the
following criteria:
• Revenue streazn is inegulaz throughout the year
� Revenue is volarile due to mazket conditions &om year to year
• Fund is wlnerable to uncontrollable circumstances (i.e. weather, environment, etc.)
Evaluate individual funds to determine restrictions in permissible use of fund balance.
Action Steps:
• Present a proposed process to the Accountant Improvement Committee (AIC), Mayor and City CounciI
forfeedback.
• Develop general policies in conjunction with Budget staff and AIC
• Identify funds that require special considerations and establish unique pazameters.
• Consider updates to fund balance/cash balance forms to reflect proposed policies
Timeline:
• Week of October 23, 2005 — Present process proposal to AIC, Council Reseazch staff and Mayor for
reaction and feedback. (completed)
• November 2, 2005 — Present proposa� to City Council for reaction and feedback. (completed)
• November 2005 - Mazch 2006 — Work with AIC to develop general parameters, identify special
circumstances, define permissible uses for each fund, eta (in process)
• April - May 2006 — Compile data and refine proposal
• Summer 2006 — Present formal report to City Council