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FC# 4 • oot AMENDMENT TO FINANCIAL POLICY FOR PURPOSE OF ALLOCATION OF EXCESS/DEFICIT GENERAL FUND REVENUES By: Diana Lund, Finance Officer Background: In 1994, Resolution #94-02-045 was created to establish a financial policy for the purpose of the allocation of the excess/deficient General Fund Revenues remaining at year end. This policy was amended by Resolution #04-10-320. The policy takes into consideration that the General Fund fund balance is to be an amount equal to 60% of the next years adopted General Fund Budget. If there are funds remaining, or a deficit exists, the following City Funds would share the allocation. Park Trust Fund - 10% of excess/deficit Equipment Replacement Fund -10% of excess/deficit Public Facilities Construction Fund - 40% of excess/deficit Public Improvement Revolving Fund - 40% of excess/deficit The Office of the State Auditor gives the following statement of position for fund balances for local governments: The State Auditor recommends that at year-end local governments maintain an unreserved fund balance in their general fund and special revenue funds of approximately 35 to 50 percent of fund operating revenues or no less than five months of operating expenditures, which should provide the local government with adequate funds until the next property tax revenue collection cycle. The adequacy of unreserved fund balance should be assessed based on an individual local government's own circumstances. If the local government's unreserved funds balance is less than or greater than the 35 to 50 percent recommended, the local government should be able to explain the reason for the difference. Taking the auditors recommendation into consideration, the city has the ability to amend its current policy by removing the section of the current policy which states that an amount equal to 10% of the next year's operating budget will be allocated to the "unreserved-undesignated" fund balance of the general fund. Amending the policy to 50% will place the city in the fund balance range reflected by the State Auditor. A possible use for the 10% currently held in the General Fund Reserves would be to transfer to the debt service account of the municipal center to pay down debt. With the debt service averaging $1.5 million per year, the City has been levying approximately $500,000 and internally loaning $1 million from the utility funds. Another use, with the proposed decrease in market value for 2011, would be to help offset the 2011 General Fund operating expenditures. The 10% transfer will be accounted for in the PIR fund.