(a) Purpose. The purpose of this policy is to take a proactive approach to financial management in the City. A Fund Cash 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. More importantly, a Fund Cash Balance Policy allows for the administration and City Council to recognize warning indicators of financial stress at an early date. This is to serve as an operating tool to manage fund cash balances on an on-going basis. This Policy is cash basis only, and should not be construed to displace or supersede the provisions of GASB 54 or GAAP reporting requirements. (Reference: Basic Financial Statements Notes: "Fund Balance".)
(b) Policy. There is hereby established a policy for the maintenance and use of unencumbered cash reserves in certain major funds for the purpose of financial stability and to back up future repayment of debt. This is intended to create a framework from which to make ongoing financial decisions. The monthly actual cash balance within the Monthly Statement of Cash Position report to Council will be reported to determine if minimum fund cash balances as stated herein are being maintained or achieved. If the cash balance falls below the minimum fund cash balance as stated herein, expenditures and/or annual appropriations shall be adjusted to ensure that the cash balance will be restored as described in the scope of this policy or denoted as to the reason for the waiver from the policy. The denoted reason should contain a plan with timelines for how the minimum fund cash balance will be restored. The Fund Cash Balance Policy will ensure that the City maintains adequate cash balance/retained earnings and reserves in its various operating funds to provide the capacity to:
(1) Provide sufficient cash flow for daily financial needs.
(2) Secure and maintain investment grade bond ratings.
(3) Offset significant economic downturns or revenue shortfalls.
(4) Provide funds for unforeseen expenditures related to emergencies.
(5) Maintain a prudent level of financial resources to protect against reducing services or raising taxes and fees due to temporary shortfalls or unexpected one-time expenditures.
(c) Definitions. The following words or phrases are defined so as to make this policy more easily understandable:
(1) "Annual appropriations." The appropriations as prepared annually during the budgetary process and approved by Council through legislation.
(2) "Cash balance." The unencumbered fund balance, or cash, prior to consideration of encumbrances.
(3) "Encumbrances." The cumulative amount of purchase orders outstanding within a fund. An encumbrance represents a draw down upon an existing appropriation to the point of limiting expenditures within a fund without exceeding those appropriations.
(4) "Fund balance." The amount of cash available in a fund net of encumbrances.
(5) "Operating expenses." All expenditures less capital expenditures and transfers.
(d) Scope.
(1) The administration and Council shall attempt to maintain a cash balance in the following funds as described below.
A. (011) General Fund - Five months operating expenses of the most recent prior year, including Police Fund structured transfer.
B. (250) General Fund Stabilization Fund - Ten percent of most recent annual General Fund appropriations.
C. (026) Water Fund - Six months operating expenses of the most recent prior year.
D. (066) Sewer Fund - Six months operating expenses of the most recent prior year.
E. (166) Storm Water Fund - Six months operating expenses of the most recent prior year.
F. (890) Employee Termination Benefits Fund - Calculate projected payouts to employees eligible for payments as calculated annually for and stipulated in the Notes to the Basic Financial Statements Compensated Absences Payable due within one year.
(2) Funds which are subject to Bond Indenture Covenants will be required to comply with those Covenants, and the terms of those Covenants which direct corrective action when a fund falls below its compliance level.
(3) All other funds not mentioned above are considered minor funds or funds sufficiently supported through operations or special appropriations and are not required to maintain a minimum fund cash balance under this policy.
(e) Monitoring and Reporting. Fund cash balances will be monitored on a month to month basis and the Treasurer will prepare a monthly report to Council identifying these funds listed herein with policy implications. A cash balance may fall below minimum levels due to current operations or emergencies. However, non-compliant funds will be identified, corrective action recommended, and action steps taken to restore the fund cash balance to compliance.
(f) No Negative Fund Cash Balances. As stated above, certain funds of the City have no fund cash balance requirement under this Policy. However, it is the intent of the City not to have negative fund cash balances, either projected or actual. Should a fund anticipate a negative fund cash balance, or actually go negative, appropriation or expenditure adjustment or transfer in of revenue shall be made to insure that the fund cash balance is restored to zero or greater than zero.
(Ord. 18-2013. Passed 8-15-13; Ord. 08-2021. Passed 4-1-21; Ord. 35-2022. Passed 11-3-22.)