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from all other funds in the city; it deals with matching expenditures and revenues to come up with profit and loss. Mr. Graczyk explained that the whole concept is that of anticipated revenues, setting appropriations and current expenditures creates a surplus which is called excess or shortage. The variance from budget (excess or shortage) is similar to the profit concept but it is not profit, it is fund balance. The designated fund balance is appropriated but not committed; the undesignated fund balance is what is available for expenditures. Fund balance is what the city draws from when there is a deficit. Mr. Hartley stated that funds budgeted and appropriated but mot expended in the previous year are available for reappropriation. Council has the responsibility of reviewing the budget and making decisions to reappropriate those funds for what was not done in the previous year, appropriate those funds for a different function, or give that function whatever is normally appropriated in a year plus the unexpended balance from the previous year. Councilmember DeLuca inquired if it is Council's discretion as to how much of a cushion there will be to pay the bills the first 6 months of the year before revenues come in. Mr. Hartley replied that he and Mr. Graczyk studied this very carefully and are recommending that the amount of the fund balance should be at least equal to or more than the amount of intergovernmental revenues the city receives plus the city's operating capital. Mr. Hartley strongly advised that Council leave management of cash flow up to the Finance Officer. Mr. Graczyk stated that page 5 of the budget draft is Other Financing Sources and Uses and list~ all transfers. The heart of the budget can be found on pages 6, 7 and 8 of the draft and involves the concepts of base, levy and mill. The figures on these pages are based on projections from the County. Mr. Graczyk stated that unlike last year, this budget will not be using any special levies. Councilmember Cox noted a $2,000,000 difference between 1987 actual budget and 1988 estimated budget for net taxable value. Mr. Hartley stated that the city does not have to levy the full base amount; a portion of it can be shown on the budget as special levy. This process would hurt the city because next year the lower amount is all the city could levy. This is one of the ways a lot of communities ended up with more local government aids because LGA is based on the same kind of concept. Mr. Graczyk explained the way in which the concept of levy and LGA work as levying more results in less local government aids, if you levy less you will get more local government aids to reach that overall revenue base. Mr. Hartley noted that if LGA were fully funded it would work, but it is not fully funded. If the State government doesn't fund LGA, the effect of levy amounts on LGA is exactly the opposite and this is currently one of Budget Committee/September 14, 1987 Page 2 of 4