Financial Policies

The Revised Code of Washington (RCW) mandates the City’s budget procedures. The City budgets on a biennial basis per Chapter 35A.34 RCW. The budget, as adopted by the City Council, constitutes the legal authority for expenditures and is prepared using the cash basis method of accounting. The City’s budget is adopted at the fund level and expenditures may not legally exceed appropriations at that level of detail.

The City has established a Contingency Fund for unknown operational adjustments, service demands, or opportunities which may arise during the year. All expenditures from the Contingency Fund shall have the prior approval of the City Council. The total amount held in the Contingency Fund shall not exceed thirty-seven and one-half cents per thousand dollars of assessed valuation of property within the City.

The City has also established a 17% reserve in the General Fund to provide sufficient cash flow to meet the financial needs of the fund based upon the total operating expenses for the fund. The reserve will be shown as a restricted ending fund balance and will be calculated upon the fund’s total expenditure budget, minus capital expenses and interfund operating transfers.

An equipment reserve for the City’s vehicles and other fixed assets is also to be maintained at a level sufficient to meet scheduled equipment replacements so as to sustain an acceptable level of municipal services and sustain the effective operation of the City’s assets. At no time shall this reserve be less than $200,000.

In addition, Utility Fund reserves will be maintained to provide sufficient cash flow to meet the financial needs of any unforeseen emergency. For annual budgeting purposes, the reserves will be shown in each fund as a restricted ending fund balance. The Storm Drainage Fund reserve was established in 2007 at $250,000; the Sewer Fund reserve was established in 2009 at $800,000; and the Water Fund reserve was established in 2011 at $600,000. These amounts are adjusted each year by the annual percentage change in the Seattle-Tacoma CPI-U (July-June).

All contributions to and expenditures drawn from reserve funds and accounts shall require prior CityCouncil approval unless previously authorized by the City Council in the annual budget.

The City has established a policy that long-term debt is to be issued solely for the purpose of financing the cost of design, acquisition and/or construction of capital projects defined in a Capital Facilities Plan and City Council shall approve indebtedness. The City may legally issue debt using only the debt instruments shown in the City’s Debt Policy and the City shall comply with all covenants and conditions contained in governing law and any legal documents entered into at the time of a bond offering. The City reviews and updates its debt policy every two years.

The City policy is to invest public funds in a manner which will provide maximum security with the highest

investment return while meeting the daily cash flow demands of the City and conforming to all state and

local statutes governing the investment of public funds per RCW 35.39.030.

The primary objectives, in priority order, of the City’s investment activities shall be:

1. Safety

2. Liquidity

3. Yield

Authority to manage the City’s investment program is derived from Resolution 01-07 and is delegated to

the Finance Director. The Finance Director is charged with the responsibility of reporting to the Finance

Committee each quarter.

The Investment Policy is to be reviewed on an annual basis by the Finance Committee and any

modifications must be taken to the City Council for approval.

The City Policy limits the annual funding allocation for Community Events and Human Services to 1% of total current year General Fund budgeted resources, excluding beginning fund balances. The funds shall be distributed from the Community Events and Services department of the General Fund. Disbursements of funds shall be on a reimbursement basis. Funds shall only be available for disbursement during the year for which they are originally granted.

Administration of the program shall be at the discretion of the Mayor. A Grant Review Committee shall meet to review the applications and recommend to the City Council the level of funding based on the criteria set forth. Funding oversight and authority is vested solely with the whole City Council and will be awarded following consideration of the Grant Review Committee’s recommendations.

City staff shall submit a report on all events funded and the amount of funds disbursed to the City Council prior to the end of each year of funding.

There are other contracts and agreements that the City has approved and authorized that must be followed and will have fiscal impact, such as collective bargaining agreements, leases, long term water supply agreements, and PWTF loans.

Glossary

Designated Fund Balance – A portion of fund balance that has been designated by past council action for a specific purpose.

Enterprise Fund – A type of proprietary fund in which the direct beneficiaries pay for all costs of the fund through fees, or where a periodic determination of revenues and expenses is desired by management.

FTE – “Full time equivalent employee.” At the City, an FTE is an employee who works a 40-hour work week. A 0.5 FTE is an employee who works a 20-hour work week, or half-time.

Fund – A self-balancing group of accounts that includes revenues and expenditures.

GAAP – ”Generally Accepted Accounting Principles,” which are mostly determined by the GASB for governments.

GASB – ”Governmental Accounting Standards Board,” which determines the underlying principles to be used in accounting for governmental activities.

General Fund – The fund of the city that accounts for all activity not specifically accounted for in other funds. Includes such operations as police, fire, engineering, planning, parks, museums and administration.

General Obligations – Bonds or other indebtedness of the city for which the pledge made for repayment is the full faith and credit of the city.

Governmental Fund Types – Funds that provide general government services. These include the general fund, special revenue funds, capital projects funds, and debt service funds.

Intergovernmental Revenues - Interfund charges to pay for quasi-external transactions of the fund.

Internal Controls – A system of controls established by the city that are designed to safeguard the assets of the city and provide reasonable assurances as to the accuracy of financial data

Internal Service Funds – A type of proprietary fund that accounts for the goods and services provided to other units of the city. Payment by the benefiting unit is intended to fund the costs of providing such services.

LEOFF – The “Law Enforcement Officers and Fire Fighters” retirement system of the state that provides coverage for city public safety employees.

Levy Rate – The property tax percentage rate used in computing the property tax amount to be paid.

Licenses and Permits – A revenue category of the city derived from business licenses and building or development permits

LID – ”Local Improvement Districts.” A financing mechanism that permits the building of public infrastructure improvements which benefit a confined area and where the costs for those improvements are to be paid by the benefiting area landowners.

Operating Budget – The annual appropriation to maintain the provision of city services to the public.

PERS – ”Public Employee Retirement System. “The state system for public employment retirement applicable in most cities for employees, except where LEOFF is applicable.

Preliminary Budget – That budget which is proposed by staff to the council and has not yet been adopted by the council.

Proprietary Funds – A group of funds that account for the activities of the city that are of a proprietary or “business” character. See “Enterprise Fund.”

Public Safety – A term used to define the combined budget of the police and fire departments.

Revenue Bonds – Bonds sold by the city that are secured only by the revenues of a particular system, usually the water/sewer fund and the regional water fund.

Special Revenue Funds – General government funds for which the source of monies is dedicated to a specific purpose.

Standard Work Year – 2,080 hours a year, 260 days (except leap year).

Fund Overview

General Fund

This fund is the primary operating fund of the government. It accounts for all financial resources except those required or elected to be accounted for in another fund.

Special Revenue Funds

These funds account for specific revenue sources that are restricted or committed to expenditures for specified purposes of the government.

Debt Service Funds

These funds account for the financial resources that are restricted, committed, or assigned to expenditures for principal, interest and related costs on general long-term debt.

Capital Projects Funds

These funds account for financial resources which are restricted, committed, or assigned for the acquisition or construction of capital facilities or other capital assets.

Enterprise Funds

These funds account for operations that provide goods or services to the general public and are supported primarily through user charges.

Internal Service FundsThese funds account for operations that provide goods or services to other departments or funds of the government on a cost reimbursement basis.