Loading...
HomeMy WebLinkAboutFinancial management policies196 CITY OF EDINA, MINNESOTA INANCIAL MANAGEMENT POLICIES PURPOSE The City of Edina has a responsibility to provide quality services to its residents, and considers it important to do so in a fiscally responsible fashion designed to keep services and taxes as consistent as possible over time. These financial management policies are meant to serve as the framework upon which consistent operations may be built and sus- tained. OPERATING BUDGET POLICIES Scope. It is the City’s policy to budget for all governmental and enterprise funds. Accounting. The governmental funds use the modified accrual basis of accounting for budgeting and reporting pur- poses. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities for the current period. The City considers all revenues, except reimbursement grants, to be available if they are collected within 60 days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred. However, debt service expenditures, as well as expenditures related to compensated absences and claims and judgments are rec- orded only when payment is due. The Enterprise Funds use the accrual basis of accounting for budgeting and reporting purposes. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenue in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. Stakeholder Input. The annual budget process is intended to weigh all competing requests for City resources within expected fiscal constraints. Requests for new programs made outside the annual budget process are discouraged. The City will provide ample time and opportunity for public input into its budget process every year. Balanced Budget Adoption. The operating budget for the General Fund will be balanced. The City will not use in- ternal or external short-term borrowing, asset sales, or one-time accounting changes to balance the General Fund budget. The balanced budget will include a reasonable annual appropriation for contingencies. Budgetary Controls. The legal level of budgetary control is at the department level within the General Fund even though budgetary data is presented at lower levels (personal services, contractual services, commodities, and central services). Expenditures may not legally exceed appropriations by department unless offset by increases in revenues. All unencumbered appropriations lapse at year-end. The City Manager may approve budgetary transfers. The City Council may approve supplemental appropriations. 197 CITY OF EDINA, MINNESOTA FINANCIAL MANAGEMENT POLICIES Monitoring. Department Directors are responsible for administration of their respective department budgets. Such responsibility includes reviewing monthly financial reports to detect errors and assess progress, staying within budget authorization, and submitting requests for budget adjustments, when required. REVENUE POLICIES Policies. The City will endeavor to maintain a diversified and stable revenue system to shelter programs and services from short-term fluctuations in any single revenue source. Property Taxes. It is beneficial for residents and for the City to keep tax rates low and consistent from year to year. The City will strive to proactively avoid large increases in the operating budget levy. Fees and Charges. The City shall establish user charges and fees for General Fund program activities at a level relat- ed to the full cost of providing the services. Components of the user charges shall include direct and indirect costs of providing the service. The City will also consider policy objectives and market rates when setting fees. Transfers. Transfers should not be used as a revenue source to balance the operating budget except for the annual transfer from our liquor operations. Investment Income. The City will reasonably budget for investment revenue in our operating budget based on the conservative investment strategy outlined in our investment policy (under separate cover). FUND BALANCE POLICIES Definitions. The term fund balance describes the net assets of the City’s governmental funds calculated in accordance with generally accepted accounting principles (GAAP). GAAP further divides fund balance into five categories; non- spendable fund balance, restricted fund balance, committed fund balance, assigned fund balance, and unassigned fund bal- ance. Nonspendable fund balance consists of amounts that cannot be spent because they are not in spendable form, such as prepaid items. Restricted fund balance consists of amounts related to externally imposed constraints established by creditors, grantors or contributors; or constraints imposed by state statutory provisions. Committed fund balance consists of amounts that are constrained for specific purposes that are internally imposed by formal action (resolution) of the City Council. Those committed amounts cannot be used for any other purpose unless City Council removes or changes the specified use by taking the same type of action it employed to previ- ously commit those amounts. Assigned fund balance consists of amounts intended to be used by the City for specific purposes but do not meet the criteria to be classified as restricted or committed. In governmental funds other than the general fund, assigned fund balance represents the remaining amount that is not restricted or committed. In the general fund, assigned amounts represent intended uses established by the City Council. Unassigned fund balance is the residual classification for the general fund and also reflects negative residual amounts in other funds. 198 CITY OF EDINA, MINNESOTA FINANCIAL MANAGEMENT POLICIES Policies. At the end of each fiscal year, the City will maintain nonspendable and restricted fund balance equal to the amounts required by GAAP for a variety of purposes, including but not limited to: prepaid expenditures, park dedica- tion fees, E-911 funds, forfeiture funds, and other assets restricted by grantors, contributors, creditors, or enabling leg- islation. At the end of each fiscal year, the City will maintain committed fund balance constrained for specific purposes by City Council. At the end of each fiscal year, the City will maintain assigned fund balance in the General Fund for investments as calcu- lated by the difference between market value and amortized value of investments held by the City at year-end. The City will also maintain assigned fund balance in the General Fund for Compensated Absences of 40% of the actual full- accrual General Fund liability for compensated absences. At the end of each fiscal year, the City’s goal is to maintain unassigned fund balance for Cash Flow in the General Fund in a range equal to 42-47% of the subsequent year’s budgeted tax revenue. In the event that unassigned fund balance falls above or below the desired range, the Finance Director shall report such amounts to the City Council as soon as practicable after the end of the fiscal year. Should the actual amount of unassigned fund balance fall below the desired range, the City shall create a plan to restore the appropriate levels. Should the actual amount of unassigned fund bal- ance fall above the desired range, any excess funds will remain unassigned pending the Council’s final decision concern- ing transfer to another fund. It is the policy of the City that, to the extent possible, such excess funds will be trans- ferred to the Construction Fund to support capital improvements and equipment. Available fund balances shall not be used for ongoing operating expenditures. When both restricted and unrestricted resources are available for use, it is the City’s policy to first use restricted re- sources, then use unrestricted resources as they are needed. When committed, assigned, or unassigned resources are available for use, it is the City’s policy to use resources in the following order: 1) committed, 2) assigned, and 3) unassigned. CAPITAL OUTLAY POLICIES Equipment Replacement Program. The City strives to maintain its physical assets at a level that minimizes future repair and maintenance costs. To accomplish this goal, the City has established the Equipment Replacement Program to annually budget and set aside funds for the timely replacement of City equipment. The City’s Equipment Replacement Program includes equipment used for General Fund programs. Capital Improvement Plan (CIP). The goal of the City’s CIP is to develop a comprehensive program for use by decision makers to guide capital investments based on an assessment of the community’s needs, taking into account the best use of limited resources while providing efficient and effective municipal services. 199 CITY OF EDINA, MINNESOTA FINANCIAL MANAGEMENT POLICIES The City will develop a five-year plan for capital improvements and update it annually. The CIP process includes analyz- ing projects contributing to the public health and welfare, projects helping to maintain and improve the efficiency of the existing systems, and projects that define a future need within the community. The City will identify the estimated cost and potential funding sources for each capital project proposal in the CIP. Pur- chase contracts for equipment and projects included in the CIP must still be properly authorized according to the City’s Purchasing Policy. The CIP will include equipment and projects from any City fund. DEBT MANAGEMENT POLICIES Policy Limits. The City will use debt only for capital improvement or projects that have a life of more than 4 years. The City will avoid using debt for cash flow borrowing, operations, or repairs. When possible, the City will not use debt to finance equipment purchases when it is possible to purchase the equip- ment on a pay-as-you-go basis with equipment replacement program or capital improvement plan reserves. The City shall use G.O. tax increment bonds only when the development merits special consideration. The City’s capital improvement plan shall contain debt assumptions which match this policy and requires a commitment to long-range financial planning which looks at multiple years of capital and debt needs. Legal Limits. Minnesota Statues, Section 475 prescribes the statutory debt limit that outstanding principal of debt cannot exceed 2% of taxable market value. This limitation applies only to debt that is wholly tax-supported. The type of debt included is either general obligation debt of any size bond issue (G.O.) or lease revenue bond issues that were over $1,000,000 at the time of issuance. However, there are also several other types of debt that do not count against the limit. G.O. tax increment, G.O. special assessment, G.O. utility revenue, G.O. recreational facility revenue, and HRA-issued debt are considered to have a separate revenue source other than just taxes and are excluded from the legal debt limit calculation. Local ordinances do not limit the City’s ability to issue debt. Issuance Practices. The City uses the competitive sale method for its general obligation bond sales unless factors such as structure, size or market conditions compel the use of a negotiated sale. The City may use an outside bond attorney, an independent financial advisor, and/or other service providers to assist with the structuring and sale of the bonds. Debt Structuring. The City’s collective debt shall amortize at least 50% of its principal within 10 years. In all cases, the maturity shall be shorter than the life of the related assets. Conduit Debt. The City may participate in conduit debt financings. Development proposals are reviewed to deter- mine if they meet program objectives and whether the proposals are financially feasible. 200 CITY OF EDINA, MINNESOTA Variable Rate Debt. The City may use variable rate debt to provide debt structuring flexibility and potential interest savings to the total debt portfolio. Variable rate debt should not constitute more than 20% of the City’s total debt obli- gations. Refunding. Current refunding bonds may be utilized when present value savings of 3% of refunded principal is achieved or in concert with other bond issues to save costs of issuance. Advance refunding bonds may be utilized when present value savings of 4% of refunded principal is achieved. Adopted by City Council February 20, 2007 Revisions: March 20, 2007 December 15, 2009 December 20, 2011 FINANCIAL MANAGEMENT POLICIES