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Councilmember Peterson suggested that Staff should also advertise for citizen volunteers for the spring events. Case #5: Review Proposed Policy on Excess/Deficient Revenues Finance Officer Hart stated that during 1993, the City Council adopted a resolution establishing a financial policy for the purpose of designating the working capital portion of the General Fund Balance Cunreserved-designated" fund balance). This policy was in response to the necessity to provide for adequate levels of resources in each year until the first property tax and state aid settlements were received. Ms. Hart reported that there have been indications at the State level that cities with large "unreserved - undesignated" fund balances at year end will be penalized. She added that while there should be some amount of "cushion" or unreserved-undesignated fund balance for mid-year crises, the City should remain cognizant of how much that unreserved-undesignated portion is. She reported that the City has developed and funded several revolving or replacement funds through the use of "outside" resources such as the landfill. These resources have ceased, as has the funding for some of these funds. Policies established for these funds generally allow only the use or earned interest each year to keep the fund principal in tact and functional. She suggested a policy which allocates a portion of excess revenues or deficiencies after complying with the policies in place for levels of fund balance, could be allocated to some of the revolving funds such as the Equipment Replacement Fund, Permanent Improvement Revolving Funds (established to provide the City's share of street projects) or a capital building fund. Ms. Hart commented that there are several other funds that could be considered in this policy; however, these three have been chosen for various reasons such as replacing the need to levy additional taxes. All three funds are non-operating and these funds would not be adversely affected by a reduction or elimination of this type of funding source. Staff recommends that when actual revenues exceed actual expenditures in a given year, the excess shall be allocated as follows: 1) Any excess shall be first allocated to "unreserved-designated" fund balance to bring that portion of fund balance to an amount equal to fifty percent of the next year's adopted operating budget per policy adopted in the resolution; 2) Any excess after complying with step one shall be allocated to "unreserved- undesignated" fund balance to bring that portion of fund balance to an amount equal to ten percent of the next year's adopted operating budget; and 3) Any excess after complying with fund balance requirements in steps one and two shall be allocated to revolving and replacement funds in the following manner: 10 percent to the Equipment Replacement Fund, 40 percent to the Capital Building Fund and 50 percent to the Permanent Improvement Revolving Fund. Ms. Hart explained that when actual expenditures exceed actual revenues in a given year, the deficit shall be treated as follows: 1) "Unreserved- designated" fund balance shall first be adjusted to an amount equal to 50 percent of the next year's adopted operating budget per policy adopted in the resolution by utilizing amounts in the "unreserved-undesignated" portion of fund balance; 2) "Unreserved-undesignated" fund balance shall be brought to an amount equal to 10 percent of the next year's adopted operating budget by transferring in monies equal to the deficit from revolving and replacement funds in the following manner: 10 percent from the Equipment Replacement Fund, 40 percent from the Capital Building Fund and 50 percent from the Permanent Improvement Revolving Fund. Ms. Hart stated there is a resolution to adopt Staff's recommendation. Motion by Councilmember Hardin and seconded by Mayor Gilbertson to recommend Council adopt the resolution establishing a financial policy for the purpose of allocation of excess/deficient general fund revenues. Motion carried. Voting Yes: Mayor Gilbertson, Councilmembers Hardin, Beyer, Peterson and Zimmerman. Voting No: None. Finance Committee/February 22, 1994 Page 4 of $