5. Fund balance policies
The objective of the fund balance policies is to provide adequate working capital for cash flow and contingency purposes, while maintaining reasonable tax rates.
5.1 General Fund cash flow and contingency
The City shall maintain a minimum unrestricted fund balance in the General Fund equal to 17% of the following year’s General Fund budgeted expenditures, not including transfers out, to be used for cash flow purposes, unanticipated expenditures of a non-recurring nature, to meet unexpected increases in service delivery costs or unexpected revenue shortfalls. These funds are used to avoid cash flow interruptions, generate interest income, and to avoid the need for short-term borrowing. Adequate operating contingency reserves shall be maintained to provide for business interruption costs and other unanticipated expenditures of a non-recurring nature. Enterprise funds shall also maintain adequate capital fund reserves for emergency improvements relating to new regulations, or emergency needs for capital repair or replacement.
5.2 General Fund operating contingency
Each year, the City shall budget an operating budget contingency of not less than 1% of all budgeted General Fund expenditures in each of the applicable years planned for in the City’s Five-Year Financial Direction.
For all other funds, appropriate balances shall be maintained reflecting the nature of the accounts, including the following:
5.3 Enterprise Funds
The City shall maintain a minimum cash balance in its Enterprise Funds equal to three months of operating expense, or 25% of the funds’ annual operating budget. This balance shall be maintained to ensure adequate maintenance reserves, operating cash flow requirements, debt service requirements and legal restrictions. Where cost-effective access to capital markets is available and debt financing is regularly used, replacement balances shall not be maintained in a manner which charges current consumers to pay for future facilities, with exceptions made for those funds associated with economic development purposes. Balances in excess of three months of operating expense may be utilized for capital purchases and replacements in lieu of debt financing if doing so allows for continued maintenance of appropriate balances and funding plans. Alternatively, surplus cash reserves may be used for early debt retirement at the discretion of the Finance Officer. Financing decisions shall consider the impact on user rates.
5.4 Internal Service Funds
The following balances shall be maintained to ensure adequate maintenance reserves, cash flow balancing requirements and legal restrictions:
- Workers' Compensation and General Liability Self-Insurance Fund shall maintain a cash balance equal to or greater than the current year projected total losses, as defined by the most recent annual independent actuarial study.
- Medical Self-Insurance Fund shall maintain a minimum cash balance of 35% of total annual claims. Funding of the reserve shall be included in the premium rates.
- Dental Self-Insurance Fund shall maintain a minimum cash balance of 20% of total annual claims. Funding of the reserve shall be included in the premium rates.
- Sick Leave Severance Self-Insurance Fund shall maintain a minimum cash balance equal to the combined short-term and long-term liability set at the end of the most recent audited period.
- Fleet Services, Intergovernmental Services, and Property Services Funds: If allocation model charges to customers are sufficient to cover debt service or depreciation expense, then the minimum cash balance should be 15% of the fund’s operating budget. If not, the reserve should be 15% of the fund’s total budget. Net position shall not fall below two times the fund’s annual depreciation amount.
- Stores and Engineering Materials & Testing Funds shall maintain cash and net position equal to 15% of the fund’s annual operating budget. For the purposes of the cash and net position target, the fund’s annual operating budget shall exclude purchases of construction materials for capital projects.
5.5 Downtown Assets Funds
The City shall maintain minimum fund balances in the following Downtown Asset Funds to ensure adequate maintenance reserves, operating cash flow requirements, and debt service requirements:
- Convention Center Operation Fund shall maintain a minimum fund balance of 15% of operating expenses and debt service expenses.
- Target Center Operation Fund shall maintain a minimum fund balance of 10% of operating expenses and debt service expenses.
5.6 Other Non-General Governmental Funds
The appropriate balances shall be the amount needed to maintain positive cash balances throughout the year with exceptions made for those funds associated with economic development purposes which may be aggregated by fund type to maintain a positive balance.
5.7 Use of fund balances
Fund balance is the accumulation of prior years’ excess or deficit of all revenues and expense. In the case of proprietary funds, this is termed unrestricted net position. For the purposes of the budget, revenue and expense activity includes bond proceeds and debt service. Available fund balances shall not be used for ongoing operating expenditures, unless a determination has been made that available balances are in excess of required guidelines and plans have been established to address any future operating budget shortfalls. Emphasis shall be placed on one-time uses that achieve future operating cost reductions and/or service level efficiencies.
5.8 Annual review
An annual review of cash flow requirements and appropriate fund balances shall be undertaken to determine whether modifications are appropriate for the reserve policy.