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CASE DISCUSSION OF EXCESS REVENUE POLICY By: Jessie Hart, Finance Officer Background: In April 1993, the City Council Adopted Resolution g93-04-061 which established a financial policy for the purpose of designating the working capital portion of the General Fund fund balance. This move was made primarily in response to threats that the State was considering penalizing cities with healthy fund balances that were not designated or legally restricted. Cities do not receive tax settlements for the first six months of the fiscal year, causing the need for a healthy fund balance at year end to get them through until the the first tax settlement arrives. The policy, which is attached, therefore designated fund balance in the General Fund as 50% of the next years operating budget for working capital. Because the City has been experiencing such rapid growth, excess revenues over expenditures were becoming common and increasing fund balance to a level far above what was needed to designate for working capital. At the same time, the City was looking for additional ways to fund various revolving and replacement programs, without a direct tax increase. Resolution g94-02-045, which is attached, addressed these concerns by formulating a financial policy for the purpose of allocation of excess/deficient General Fund reserves. This policy extends the original fund balance policy in two ways: 1) Allows for the increase/reduction in the unreserved/undesignated portion of the General Fund fund balance to an amount equal to 10% of the next years operating budget,;and 2) Allows for the final distribution/recovery of anything over, or short of the fund balance requirements, as indicated in the original policy and number one above to three specific revolving/replacement funds. By developing the policy in this manner, it ensured a "reasonable" fund balance, and allowed for additional funding of the Public Improvement Revolving Fund, Equipment Replacement Fund and the Capital Building Fund (future facilities construction) by transferring any exesses to these funds in the percentages specified in the policy. The policy also addresses the process if it happens to be a year in which excess revenues are not enough to meet the fund balance requirements or there is an operating deficit in the General Fund. The following table shows how much was transferred from 1993, the first year the policy was effective, and the amounts to be transferred for 1994, after meeting fund balance requirements: FUND 1993 1994 Public Improvement Revolving Fund Equipment Replacement Fund Capital Building Fund Total Excess Transferred $216,300.30 $ 63,587.00 43,260.05 12,718.00 173,040.24 50.870.00 $432,600.59 $127,175.00