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REVIE~ CASE # -~ PROPOSED POLICY ON EXCESS/DEFICIENT REVENUES By: Jeasie L. Hart, Finance Officer Background: r During 1993 the City Council adopted Resolution g93-04-061 Establishing a Financial Policy for the Purpose of iDesig,n,,ating the Working Capital Portion of the General Fund Balance ("unresm-ved-dcsignated fund balance). This policy was in response to the necessity to provide for adequate levels of resources in each year until the fn'st property tax and state aid settlements were received. There have als0 been indications at the State level that cities with large "unreserved - undesignated" fu~.~ d balances at year end will be penaI~zed in a manner similar to the way school dismcts were pe~nalized a number of years ago. The unreserved-undesignated portion of the General Fund lurid balance at December 31, 1992 was $496,970 or 29% of the total fund balance and 23% of the ~dopted 1993 General Fund budget. While there should be some amount of "cushion" or unre[served-undesignated fund balance for mid-year crises, such as cuts in state aids, low property tax ~ollections or deficiencies in budgeted revenue, we should remain cognizant of how much that .ufireserved-undesignated portion is. There have been ~Several years when building permit and other revenues have far exceeded the budgeted amounts and provided for an excess in actual revenues over expenditures. These excesses, after ~omplying with the policy designating working capital, are adding to the unreserved-undeSignated portion of the General Fund balance. While future years may still provide for these .bxcesses, there may be years when there are deficiencies rather than excesses. The City has taken great strides in the past few years toward responsible fiscal planning. An additional step isito develop a policy for treating any excesses or deficiencies in actual year end revenues and expenditures without jeopardizing the protection of e:cisting fund balances. The City has dev~eloped 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. P~licies established for these funds generally allow only the use of earned interest each year to keepl,the fund in tact and functional Although, as the City of Ramsey grows, so does its n.eexis to pro,de increased levels of service. Funding is necessary to provide the increased services. A policy which alatomatically allocates a portion of excess revenues, if any, after complying with the policies in pl ~a~ce for levels of fund balance, could be allocated to some of the revolving funds such as the Equip~nent Replacement Fund, Permanent Improvement Revolv/ng Funds (established to provide the Ciys share of street projects), or a capital building fund. The same should be mae for any deficiencies. There are sever~ other funds that could be considered in this policy. These three have been chosen for the following reasons: 1) 2) 3) The fundigg provided from these funds replaces the need to levy additional taxes. All three ~fi.mds are "non-operating" type funds and provide funding toward more "capital" or one tm~ expenditures. These fun{ts would not be adversely affected by a reduction or elimination of this type of funding s6urce.