(a) Purpose. This policy is designed to take a proactive approach to financial management in the City of Tallmadge. A minimum fund balance policy assists the City in maintaining the security of major operating funds and contributes to the financial stability of the City by maintaining adequate financial reserves. Also, a minimum fund balance policy will allow the Administration and Council to recognize and react to warning indicators of financial stress and set guidelines for proactive measures.
(b) Policy. At the time of budget preparation, annual appropriations shall be adjusted to ensure that the Anticipated Fund Balances are greater than or equal to the Minimum Fund Balance as described in the scope of this policy.
(c) Definitions.
(1) "Projected Beginning Fund Balance" means the projected unencumbered fund balance for the beginning of the fiscal year. The projected beginning fund balance is calculated at the time the budget is prepared.
(2) "Operating Appropriation" means total appropriations including transfers for Bond Retirement and Pension as these represent ongoing commitments of the City. Excluded are all other transfers and capital appropriations.
(3) "Anticipated Revenue" means the amount of revenue the City expects to receive in the upcoming fiscal year to fund annual appropriations.
(4) "Anticipated Fund Balance" means an amount equal to the Projected Beginning Fund Balance less Total Appropriations plus Anticipated Revenue. The anticipated fund balance is calculated at the time the budget is prepared.
(5) "Financial Review Committee" means a committee to review financial matters of the City, consisting of the Director of Finance, Mayor, Director of Administration, Chairman of Finance Committee of Council, and member of the Finance Committee of Council.
(d) Scope.
(1) This Policy applies to all Major Funds used by the City and are listed below in three different categories:
A. Category 1: These funds have more than one million dollars ($1,000,000) in operating appropriations and receive no more than 10% of revenue from transfers. They have their own significant source of revenues and therefore should be required to carry a minimum fund balance of 25% of operating appropriations. These funds are Category 1 Major Funds and include: General Fund, Sanitary Sewer Operating Fund, and Water Operating Fund.
B. Category 2: These funds have more than one million dollars ($1,000,000) in operating appropriations. They rely heavily on operating transfers and therefore should be required to carry a smaller minimum fund balance of 8.5% of operating appropriations. These funds are Category 2 Major Funds and include: Fire/EMS Fund and Street Maintenance and Repair Fund.
Note: The Self Insurance Fund would fall under a Category 2 fund, although it has separate legislation that requires a minimum balance of one hundred thousand dollars ($ l,000,000) due to the nature of that fund.
C. Category 3: These funds are created for the sole purpose of a capital project, whether governmental, enterprise, internal service, trust, or agency funds. These are Category 3 Major Fund status even if they satisfy the criteria for the above two categories. There is no requirement to maintain a minimum fund balance on these funds.
(2) All other funds are considered minor funds and are not required to maintain a minimum fund balance. Funds may be recategorized as needed if they meet the requirements of Category 1, 2, or 3 at a future date.
(e) Application.
(1) The anticipated fund balance will be calculated at the time of budget preparation. Anticipated fund balance will be calculated taking the budget year's projected beginning fund balance less appropriations (which may include debt service) plus anticipated revenue. The resulting fund balance must comply to the minimum fund balances established in the scope of this policy.
(2) This policy will be applied to the annual operating budget of the City prior to presenting it to Council. Any changes in the budget made by Council must also comply with the restrictions established in this policy prior to the adoption of the annual appropriation ordinance.
(f) Monitoring. Fund balances will be monitored on a month-to-month basis. Monitoring projections will be based upon trend data. The fund balances may drop temporarily below the minimum level due to current operations or emergencies. Additional monitoring and reports will be done per the Financial Action Plan when required.
(g) Compliance. Once it is determined that the City cannot meet the requirements of this policy, the Mayor will include a concise statement in the annual appropriations ordinance explaining the decision to waive the policy. The statement should include the present financial status of the City, a specified timetable for returning to the policy, and reason(s) given for overriding the policy. Should it be determined that the City will not be able to fall within conformance within one year, the Financial Action Plan will be implemented.
(h) Financial Action Plan. Once it is determined that the General Fund will not be able to meet the required 25% reserve, the financial action plan shall be implemented in various stages for each category of funds.
(1) Category I Funds - General Fund:
A. Step I Projected reserves drop between 20% to 25%.
1. If the reserves drop below 25% because of a one-time capital purchase, no action will be needed on the assumption that the reserves will be met within one year.
2. If the reserves drop below 25% due to operational expenses, the Director of Administration shall, during the budget process, reduce all possible appropriations. If this process brings the budget within the required 25% reserve, no further action is required.
3. If the above process does not provide for the required reserves, the reserve may be reduced to 20%, provided that a report is compiled from the Mayor, as stated in the Compliance section of this policy.
B. Step 2 Projected reserves drop between 15% to 20%.
1. If the reserves drop between 15%-20%, the City must take additional measures to limit expenditures and increase revenues.
2. The City will enact a hiring freeze for any additional personnel who are funded through this fund, unless there is a revenue generating program to pay for the individual(s).
3. All non-union wages may be frozen; a request for wage concessions from its union employees will be made.
4. All non-essential expenditures shall cease.
5. The use of contractual employees and/or consultants will be closely scrutinized and discouraged.
6. Purchase of capital items shall only be made if absolutely necessary, provided that those purchases do not increase future operating costs.
7. The Mayor and his/her designees shall review all charges for fees and seek additional revenue sources.
8. The Director of Administration shall prepare a two-year budget projection to determine the long-term financial impact of the recommended changes.
9. The Financial Review Committee shall meet and consider the necessary suggestions for revenue enhancements.
C. Step 3 Projected reserves drop between 10% to 15%.
1. The City should consider itself in a fiscal alert.
2. Review existing tax levies and consider replacements or other alternatives.
3. Reduction in staffing shall be reviewed and considered.
4. The Financial Review Committee shall meet to discuss revenue enhancements, tax levies, and reductions in personnel. The Committee must present a report back to Council with a financial plan for recovery.
5. This reduction in reserves should not be considered as acceptable.
D. Step 4 Protected reserves drop below 10%.
1. The City should be considered in a fiscal crisis and shall take all measures necessary to improve the financial condition of the City.
2. In addition to the steps above, tax levies must be considered.
3. Capital purchases must be held to an absolute minimum or stopped.
4. Mandatory reduction of staffing at all levels.
5. Reciprocity of income tax should be reduced.
6. All City Administrators shall work to make every effort to raise revenues to bolster their reserves and limit expenditures. This may continue for multiple years, but it is suggested to make changes in a short time frame.
(2) Category I - Enterprise Funds (Water and Sewer Operating).
A. Step 1 Projected reserves drop between 20% to 25%.
1. If the reserves drop below 25% because of a one-time capital purchase, no further action will be needed on the assumption that the reserves will be met within one year.
2. If the reserves drop below 25% due to operational expenses, the Director of Administration shall, during the budget process, reduce all possible appropriations. If this step brings the budget within the required 25% reserve, no further action is required.
3. If the above process does not provide for the required reserves, the reserve may be reduced to 20%, provided that a report is compiled from the Mayor, as stated in the Compliance section of this policy.
4. During the fiscal year that the fund is below 25% reserve, the Director of Public Service may raise fees to bring the fund back into alignment.
B. Step 2 Projected reserves drop between 15% to 20%.
1. If the reserves drop between 15%-20%, the City must take additional measures to limit expenditures and increase revenues.
2. The City will enact a hiring freeze for any additional personnel who are funded through this fund, unless there is a revenue generating program to pay for the individual(s).
3. All non-union wages may be frozen; a request for wage concessions from its union employees will be made.
4. All non-essential expenditures shall cease.
5. The use of contractual employees and or consultants will be closely scrutinized and discouraged.
6. Purchase of capital items shall only be made if absolutely necessary, provided that those purchases do not increase future operating costs.
7. The Director of Public Service shall notify Council and may institute a rate increase for the enterprise fund(s).
8. The Director of Administration shall prepare a two-year budget projection to determine the long-term financial impact of the recommended changes.
9. The Director of Public Service must do a rate study which reflects the anticipated revenues and expenditures along with capital outlays for the particular enterprise fund.
C. Step 3 Protected reserves drop below 15%.
1. If the reserves drop below 15%, it is considered unacceptable and the above actions must continue.
2. Reduction in staffing shall be reviewed.
(3) Category 2 Funds - Fire/EMS and Street Maintenance and Repair (SMR).
A. Step 1 Projected reserves drop below 8.5%.
1. If the reserves drop below 8.5% due to operational expenses, the Director of Administration shall, during the budget process, reduce all possible appropriations. If this step brings the budget within the required 8.5% reserve, no further action is required.
2. When these funds are unable to meet the 8.5% reserve, revenues may be transferred in from the General Fund when possible.
3. Should the General Fund be unable to meets its required reserve, the Category 2 funds balances may drop to 5%, provided that a report is compiled from the Mayor, as stated in the Compliance section of this policy.
B. Step 2 Projected reserves drop below 5%.
1. All City Administrators shall work to make every effort to raise revenues to bolster their reserves and limit expenditures.
2. The City will enact a hiring freeze for any additional personnel charged to the specific fund, unless there is a revenue generating program to pay for the individual(s).
3. Reduction in staffing shall be reviewed.
4. Review of services and staffing shall be done.
5. All non-union wages may be frozen; a request for wage concessions from its union employees will be made.
6. All non-essential expenditures shall cease.
7. The use of contractual employees and/or consultants will be closely scrutinized and discouraged.
8. Purchases of capital items shall only be made if absolutely necessary, provided that those purchases do not increase future operating costs.
9. The Mayor, Director of Administration, and Finance Director shall review all charges for fees and evaluate new revenue sources, including but not limited to, tax levy replacements, additional levies, etc.
10. The Director of Administration shall prepare a two-year budget projection to determine the long term financial impact of the recommended changes.
11. The Financial Review Committee shall meet and consider the necessary suggestions for revenue enhancements and present them to Council.
(4) Category 3 Funds are excluded from major fund status, thereby requiring no minimum balance.
(Ord. 33-2005. Passed 4-28-05.)