Agenda - Council Work Session - 06/09/2026

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The City has adopted a fund balance policy that calls for maintaining an unassigned amount equal to 50.0 percent of the following years adopted operating budget plus prior year encumbrances (if any). The following graph presents this ratio for the last five years compared to this policy: 80% 70% 60% 50% 40% 30% 20% Fund Balance as a Percentage of Expenditures Year Ended December 31, 111 2021 2022 2023 2024 2025 t Fund Balance Policy Maximum 50.0% 50.0% 50.0% 50.0% 50.0% — M— Unassigned Fund Balance 50.0% 50.0% 50.0% 50.0% 50.0% As the graph illustrates, the City has met the year-end fund balance policy goal as of December 31, 2025. A government, like any organization, requires a certain amount of equity to operate. A healthy financial position allows the City to avoid volatility in tax rates; helps minimize the impact of state funding changes; allows for the adequate and consistent funding of services, repairs, and unexpected costs; and is a factor in determining the City's bond rating and resulting interest costs. A trend that is typical to Minnesota local governments, especially the General Fund of cities, is the unusual cash flow experienced throughout the year. The City's General Fund cash disbursements are spread relatively evenly throughout the year, other than the impact of seasonal services such as snowplowing, street maintenance, and recreation activities. Cash receipts of the General Fund are quite a different story. Property taxes comprise about 79.9 percent of the fund's total annual revenue. Approximately half of the City's annual property tax levy is collected and remitted to the City by the end of June and the rest by December. Consequently, cities depend on the resources this fund balance represents to provide adequate cash reserves to finance their everyday operations between these collections. -11-