Loading...
8. Discussion on financial policy changes Staff Report Date of Meeting: October 3, 2018 To: City Council From: Neil Soltis, Administrator Re: Financial policies As a part of getting a rating for the 2018 bond issue, Standard and Poors requested information on financial policies. The City has adopted a Fund Balance policy but does not have a debt policy or an investment policy. Fund Balance policy – The current policy calls for the City to maintain fund balance of 35% to 50% of total annual General Operating Fund expenditures and, if the balance of the unassigned account rises above 50% at the end of the fiscal year, the amount above 50% shall either be budgeted in the next year’s annual operating budget or transferred to a capital improvement account. For 2018 the balance in the unassigned account above 50% of budgeted expenditures was used to reduce the 2018 levy with the remainder transferred to the Capital project fund. The issue with the policy that should be discussed related to cash flow.  For 2018 82% of the budgeted General Fund revenues will come from property taxes.  Property taxes are paid to the City in July, December, and January of the following year.  In 2017 53% of the property taxes levied were received in July.  Consequently the City needs to operate using the unassigned fund balance from the previous year until the July property taxes (which is 2017 were 43% of the budgeted General Fund revenues, are received. From a cash flow perspective carrying over 35% of the unassigned fund balance would not provide sufficient funds to fund operations until the July property taxes are received. I believe that the minimum unassigned fund balance should be 50% with an upper limit of 65% in order to ensure that adequate funds are available. Investment policy – Annually the City Council passes a resolution in January designating the official depositories for the upcoming year. For 2018 the following institutions were designated: Security State Bank of Marine, Midwest One Bank, and 4M Fund of the League of Minnesota Cities. Since there are not excess funds beyond that which would be needed for operations and capital, the investment have been limited to more liquid investments such as certificates of deposit and money market funds. The policy draft would formalize the investment options for the City and would establish investment objectives. CITY OF SCANDIA RESOLUTION NO. 11-20-12-01 A RESOLUTION ESTABLISHING FUND BALANCE POLICIES AS REQUIRED BY GASB 54 WHEREAS, the Governmental Accounting Standards Board ("GASB") has adopted Statement 54 ("GASB 54"), a new standard for governmental fund balance reporting and governmental fund type definitions that became effective in governmental fiscal years starting after June 15, 2010, and WHEREAS, the City of Scandia elects to implement GASB 54 requirements, and to apply such requirements to its financial statements beginning with the January 1, 2011 to December 31, 2011 fiscal year; and WHEREAS, the City Council of the City of Scandia adopted the following Fund Balance Policy on February 21, 2012: FUND BALANCE POLICY Fund balances measure the net financial resources available to finance expenditures of future periods. The City’s fund balances will be maintained to provide the city with sufficient working capital and a margin of safety to address emergencies without borrowing. The fund balances may only be appropriated by approval of the City Council. In circumstances where an expenditure is to be made for a purpose for which amounts are available in multiple fund balance classifications, the order in which resources will be expended is as follows: restricted fund balance, followed by committed fund balance, assigned fund balance, and lastly, unassigned fund balance. FURTHER, BE IT RESOLVED that the Scandia City Council assigns its January 1, 2011 fund balance as follows:  Capital Improvement Fund: The existing fund balance is assigned to various infrastructure improvement projects within the City, except those projects paid from business type activities (enterprise fund).  Park Improvement Fund: The existing fund balance is assigned to acquisition and development of city parks.  Equipment Replacement Fund: The existing fund balance is assigned to purchasing motor vehicles and heavy machinery. Resolution No.: 11-20-12-01 Page 2 of 2 AND FURTHER, BE IT RESOLVED that the Scandia City Council establishes the following fund balance goal:  General Fund: Maintain fund balance of 35% to 50% of total annual General Operating Fund expenditures. NOW, THEREFORE, BE IT HEREBY RESOLVED BY THE CITY COUNCIL OF THE CITY OF SCANDIA, WASHINGTON COUNTY, MINNESOTA that it hereby adopts the following amendments to the Fund Balance Policy: BE IT FURTHER RESOLVED, that if the balance of the unassigned account rises above 50% at the end of the fiscal year, the amount above 50% shall either be budgeted in the next year’s annual operating budget or transferred to a capital improvement account, BE IT FURTHER RESOLVED, that the City Administrator shall annually report the projected unassigned fund balance of the General Fund when the annual budget for the forthcoming year is presented to the City Council. Adopted by the Scandia City Council this 20th day of November, 2012. ________________________________ Randall Simonson, Mayor ATTEST: ___________________________________ Kristina Handt, Administrator/Clerk City of Scandia - Investment Policy Safety: is the first investment objective. Investment options shall be considered in a manner that seeks to ensure the preservation of the principal. To obtain this objective, diversification is to be considered in the type of investment, maturity and the invest ment institution where the investment is located. For checking accounts and savings accounts collateral may be required. Such collateral requirements will be monitored on a monthly basis. Certificates of deposit will not be purchased beyond the FDIC limitations on insurance of said certificates. Liquidity: is the second investment objective to be considered. The investment portfolio must remain sufficiently liquid to enable the City to meet its cash flow requirements as may be reasonably anticipated. Liquidity in the face of changing market conditions will also be a consideration in determining the term of any investment purchased. The Return on the Investment: is the third investment objective. The investment portfolio should be designed with the objective of attaining a market rate of return through the budgetary and economic cycles taking into constraints of risk and cash flow characteristics of the investment portfolio. The City’s Investment policy and practices will conform to Minnesota Statutes 118A. Management of the City’s investment activity is delegated to the City Administrator or designee. No person will engage in an investment transaction on behalf of the City’s except as provided under the terms of this policy and the procedures established to maintain this program. Employees and other city officials involved in the investment process shall refrain from personal business activity that could conflict with the City’s investment program or could reasonably expect the public to question or doubt the ability to make impartial, objective investment decisions. Any such conflict or potential conflicts must be declared to the City Administrator as soon as such conflict or potential conflict is known. The City Council will annually approve the financial institutions or broker/dealers authorized to provide investment services. All broker/dealers providing investment services shall have a Broker Certification form properly completed annually and on file with the City Investment authorized and permitted by this policy are as follows:  United States Securities including governmental bonds, notes, bills, mortgages and other securities which are direct obligations or are guaranteed or insured issues of the United States, its agencies, its instrumentalities, or organizations created by an act of Congress ( e.g. U.S. Treasury bills, Federal Home Loan Bank Notes, other government backed securities, etc.).  Minnesota Joint Powers Investment Trust agreements or contracts for shares of a Minnesota joint powers investment trust whose investments are restricted to securities authorized for investment by the City and shares of an investment company registered under the Federal Securities Act of 1940, whose shares are registered under the Federal Securities Act of 1933, as long as the investment company receives the highest credit rating and is rated in one of the two highest risk categories by at least one nationally recognized statistical rating organization and is invested in financial instruments with a final maturity of no longer than 13 months (e.g. the Minnesota Municipal Money Market (4M Fund).  Time deposits/certificate of deposits fully insured by the Federal Deposit Insurance Corporation. Investment transactions are to be documented by the City’s finance department. Investment confirmations are received from banks and/or brokers for each transaction. The finance department maintains all investment transactions on a monthly summary of cash and investments. Annual reports on composition of the investment portfol io (type, financial institution, yield, purchase and maturity dates, and amount invested) will be also be prepared.