Criteria for use of fund balance reserves shall be established as follows:
A. Ensure Fiscal Solvency: A central goal of this budget policy is to bring about the development and preservation of adequate fund balance reserves to ensure fiscal solvency of the city over the long run, as a safeguard against economic downturns, natural disasters or other catastrophic circumstances, significant budgeting or accounting errors, or possibly even adverse liability claims or legal judgments.
B. Avoid Financing Of New Spending Initiatives: Caution must be exercised whenever considering budgeting reserve funds, even when actual reserve fund levels exceed desired levels, since they represent onetime monies. For example, as a general rule, municipalities should avoid using reserve funds to finance new spending initiatives, lest they find themselves unable to satisfy the new, recurring expenses.
C. Criteria Outlining Acceptable Uses: This said, there are circumstances when it is acceptable and/or necessary to budget the use of fund balance reserves even though reserve amounts on hand already fall shy of desired levels. Municipalities will benefit, however, from adopting, in advance, written, objective criteria outlining acceptable uses of fund balance reserves, to serve as a guide for administrators and managers in their budgeting practices.
D. Acceptable Appropriations: Acceptable/permitted appropriations of fund balance reserves might include:
1. Emergency expenditures for life, health, or public safety issues for which no existing appropriation exists;
2. Situations where the expenditure will yield recurring savings which offset the expense within five (5) years;
3. Situations where the expenditure will yield a recurring stream of additional or new revenues which offset the expense within five (5) years;
4. The expenditure of restricted resources temporarily held within fund balance reserves, pending disbursement, in accordance with restrictions imposed by the donor or granting entity;
5. Correcting results of an erroneous posting or transaction;
6. Situations where fund balance reserves exceed desired levels and the proposed use is of a nonoperational nature involving capital or equipment purchases having a useful life of greater than five (5) years;
7. Situations where fund balance reserves exceed desired levels and the proposed use is of a nonrecurring nature, such as a study, or for startup costs of a program whose ongoing costs are otherwise funded;
8. Situations where an unexpected expense arises that could not have reasonably been foreseen, for which new revenue funded appropriations are not available and transfers of existing appropriations are not considered feasible or appropriate in maintaining existing service levels throughout the city;
9. Situations where an unexpected revenue decline arises that could not have reasonably been foreseen, for which new revenue funded appropriations are not available and transfers of existing appropriations are not considered feasible or appropriate in maintaining existing service levels throughout the city;
10. To create a new fund for a dedicated purpose; or
11. To satisfy a judgment from a court of competent jurisdiction.
E. Prohibited Supplemental Appropriation: Under no circumstances should a supplemental appropriation of fund balance reserves be made for an expenditure likely to recur on a multiple year or annual basis. (Ord. 896, 11-8-2004)