Agenda - Council Work Session - 10/22/2024

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• Enhance creditworthiness—Bond rating agencies routinely examine fund balance policies, and how closely the policies are followed in practice. Fund balances can help reduce borrowing needs by financing some projects internally (equipment replacements, repair projects, building repairs and maintenance etc.), avoid short-term borrowing for operating costs, protect the City's credit rating, and in turn reduce borrowing expenses (through lower interest rates). • Moderate fluctuations in levies and user fees — Sharp changes in tax levies and user fees are undesirable for citizens and business owners. Large capital costs have the potential to cause dramatic fluctuations in levies and user fees. • Protect essential services—Fund balances help to sustain operations, avoid service disruptions, and insulate the City from temporary revenue shortfalls by considering the volatility and predictability of revenues (for example, permit revenues and state aid) and economic conditions/pressures (inflation). • Insulate the City from unanticipated one-time expenditures —Fund balances above required minimums provide the financial flexibility to respond to unanticipated events or emergencies (storm damage, emergency utility repairs, extended periods of drought, sustained periods of heavy rain, disaster recovery, etc.). Policy Guidelines The City establishes the following fund balance guidelines, in consideration of the City's operations, tax base, reliability of non-tax revenue sources, operating capital needs, bond rating factors, state and local economic outlook,potential emergency needs, and other potential demands on City fund balances. General Guidelines—The City shall: • Maintain fund balances as required by law, ordinance, bond covenants, and the guidelines established in this policy. • Measure fund balances as of December 31 of each year (the end of the fiscal year). • Report fund balance variances to the City Council in conjunction with issuance of the Annual Comprehensive Financial Report(ACFR). • Consider variances, between actual fund balance when establishing tax levies and user fees for the ensuing budget. General Fund Guidelines—The following requirements are established for the General Fund, as of the end of each fiscal year. • General Fund - The following minimum and maximum General Fund balance levels are established, in recognition of the working capital requirements, the potential for unanticipated events, and periodic special circumstances that may arise: 1. Working capital—The minimum General Fund balance shall be equal to fifty percent (50%) of the ensuing years General Fund tax levy, and levy-based state aid (local 2