Financial Policies

Fiscal Year 2023

Financial policies are central to a strategic, long-term approach to financial management. Some of the benefits of adopting formal, written financial policies include their ability to help governments:

  • Institutionalize good financial management practices.
  • Clarify and crystallize strategic intent for financial management.
  • Define boundaries within which staff and council can innovate in order to realize the organization's strategic intent.
  • Support good bond ratings and thereby reduce the cost of borrowing.
  • Promote long-term and strategic thinking.

Debt Policy


The use of borrowing and debt is an important and flexible revenue source available to the City. Debt is a mechanism which allows capital improvements to proceed when needed, in advance of when it would otherwise be possible. It can reduce long-term costs due to inflation, prevent lost opportunities, and equalize the costs of improvements to present and future constituencies. It is often considered more equitable to finance larger projects through debt. In this manner, the taxpayers paying for the improvement are also the same taxpayers benefitting from the improvement over the same period of time.

Debt management is an integral part of the financial management of the City. Adequate resources must be provided for the repayment of debt, and the level of debt incurred by the City must be effectively controlled to amounts that are manageable and within levels that will maintain or enhance the City’s credit rating. A goal of debt management is to stabilize the overall debt burden and future tax levy requirements to ensure that issued debt can be repaid and prevent default on any municipal debt. A debt level which is too high places a burden on the fiscal resources of the City and its taxpayers and can create problems for the community’s economy as a whole.

The City’s overall tax levy must be reflective of the impact of debt issuance. Alternative revenue sources will be used when practicable to maintain an overall tax rate consistent with the general philosophy of municipal service determined by the City Council.

The cost of financing through the issuance of debt is also affected by the strength of the City’s financial position. Bond ratings and investor’s bids are influenced by the City’s debt management policy, as well as, the overall financial policies of the City. It is the City’s goal to maintain a debt management policy that keeps outstanding debt within manageable levels and which maintains the City’s flexibility.


Wise and prudent use of debt provides fiscal and service advantages. The following guidelines provide a framework and limit on debt utilization:

  1. The City will strive to maintain a "pay-as-you-go" capital funding policy, supporting capital spending without use of debt whenever feasible.
  2. The City will not use long-term debt for current operations.
  3. To enhance creditworthiness and prudent financial management, the City is committed to systematic capital planning, intergovernmental cooperation and coordination, and long-term financial planning. Evidence of this commitment to capital planning will be demonstrated through adoption and periodic adjustment of the City's Capital Improvement Program (CIP) identifying the benefits, costs, and method of funding for each capital improvement planned for the succeeding five years, coordination with the City's strategic plan, coordination with other units of government (i.e. school and county), and consideration of the City's current growth and future anticipated growth. The City will restrict long-term borrowing to planned capital improvements in the City's CIP.
  4. The City's goal should be to:

a. maintain a net debt service levy that is less than 15% of general fund operating expenditures.

b. forecast the impact of potential future debt on the debt service levy and on customers of the enterprises impacted by revenue bonds.

c. review the impacts of additional debt service on the City's bond rating (ratio of net direct debt to full market value and ratio of net direct debt to operating revenues of the general fund and debt service funds combined).

5. Any capital improvement projects or capital equipment financed through bonds should be financed for a period not to exceed the expected useful life of the project or equipment.

6. Total debt outstanding, including overlapping debt, will be considered when planning additional debt issuance.

7. Financing requirements will be reviewed annually. The timing for financing will be based upon the City's need for funds, market conditions and debt management policy. Various types of financing will be those that meet statutory requirements.

8. The City (by itself or with a financial advisor) will track and identify opportunities for restructuring or refinancing debt.

9. When feasible, the City will use refunding mechanisms to reduce interest cost and evaluate the use of debt reserves to lower overall annual debt service where possible.

10. All bond proceeds shall be invested separate from the City's consolidated cash pool unless otherwise specified by the bond legislation. Investments will be consistent with those authorized by state statute and the City's investment policy in order to maintain safety and liquidity of the funds.

11. The City will comply with all state and federal law compliance practices for debt issuance and ongoing administrative debt management (i.e. continuing disclosure, arbitrage, ect.).

12. The City will maintain good communications with bond rating agencies regarding its financial condition. The City will follow a policy of full disclosure in every financial report and bond offering document.

13. The City will consider the financial impact of bank qualifications and may time capital expenditures and debt issuances to take advantage of the bank qualification rules.


The primary responsibility for administering this policy rests with the Finance Director, who shall be assisted by other City staff and City Council.


This policy shall become effective upon approval by the City Council.

Investment Policy


It is the policy of the City to invest public funds in a manner which will provide the highest investment return with the maximum security while meeting the daily cash flow requirements of the City and conforming to all state and local statutes governing the investment of public funds. The purpose of this Policy is to develop an overall program for cash investments, designed and managed with a high degree of professionalism, worthy of the public trust; to establish that elected and appointed officials and employees are custodians of a portfolio which shall be subject to public review; to establish cash investment objectives, delegation of authority, standards of prudence, internal controls, authorized investments, selection process for investments, and broker representations.


This Policy applies to the investment and deposit of all funds of the City. These funds are accounted for in the Comprehensive Annual Financial Report and include all City, EDA and HRA funds.

A. Pooling of Funds

Except for cash in certain restricted and special funds, the City will consolidate cash and reserve balances from all funds to maximize investment earnings and to increase efficiencies with regard to investment pricing, safekeeping and administration. Investment income will be allocated to the various funds based on their respective participation and in accordance with generally accepted accounting principles.


At all times, investments of the City shall be in accordance with Minnesota Statutes Chapter 118A and amendments thereto. The primary objectives of the City's investment activities shall be in the following order of priority:

A. Safety

Safety of principal is the foremost objective of the investment portfolio. Investments shall be undertaken in a manner that seeks to ensure the preservation of capital in the overall portfolio. The objective will be to mitigate credit risk, interest rate risk, and custodial risk.

Credit Risk: Credit Risk is the risk of loss due to failure of the security issuer or backer. Thus, designated depositories shall have insurance through the FDIC (Federal Insurance) or the SIPC (Securities Investor Protection Corporation). To ensure safety, it is the policy of the City that when considering an investment, all depositories under consideration be cross-checked against existing investments to make certain that funds in excess of insurance limits are not made in the same institution unless collateralized as outlined below. Furthermore, the City Council will approve all financial institutions, brokers, and advisers with which the City will do business.

Interest Rate Risk: Interest Rate Risk is the risk that the market value of securities in the portfolio will fall due to changes in general interest rates. The City will minimize Interest Rate Risk by structuring the investment portfolio so that securities mature to meet cash requirements for ongoing operations, thereby avoiding the need to sell securities on the open market prior to maturity.

Custodial Risk: The City will minimize deposit Custodial Risk, which is the risk of loss due to failure of the depository bank (or credit union), by obtaining collateral or bond for all uninsured amounts on deposit, and by obtaining necessary documentation to show compliance with state law and a perfected security interest under federal law.

B. Liquidity

The investment portfolio shall remain sufficiently liquid to meet projected disbursement requirements. This is accomplished by structuring the portfolio so that securities mature concurrent with cash needs to meet anticipated demands. Generally, investments shall have “laddered” maturities so that money becomes available on a regular schedule. Liquid funds will allow the City to meet possible cash emergencies without being penalized on investments.

C. Yield

The investment portfolio shall be designed to manage the funds to maximize returns consistent with items A and B above and within the requirements set forth in this Policy. Subject to the requirements of the above objectives, it is the policy of the City to offer financial institutions and companies within the City the opportunity to bid on investments; however, the City will seek the best investment yields.


Responsibility for the investment program is hereby delegated from the City Council to the City Administrator. Authority to conduct actual investment transactions may be delegated to the Finance Director, who shall act in accordance with procedures as established with this investment policy. The authorized individuals, when acting in accordance with this Policy and exercising due diligence, shall not be held responsible for losses, provided that the losses are reported immediately and that appropriate action is taken to control further losses.


The standard of prudence to be used by investment officials shall be the “prudent investor”, and shall be applied in the context of managing the investments. All investment transactions shall be made in good faith with the degree of judgment and care, under the circumstances, that a person of prudence, discretion and intelligence would exercise in the management of their own affairs. This standard of prudence shall mean not for speculation, and with consideration of the probable safety of the capital as well as the probable investment return derived from assets.


Internal controls are designed to prevent loss of public funds due to fraud, error, misrepresentation, unanticipated market changes, or imprudent actions. The Finance Director is responsible for establishing and maintaining an adequate internal control structure. The internal control structure shall be designed to provide reasonable assurance that these objectives are met. The concept of reasonable assurance recognizes that (1) the cost of a control should not exceed the benefits likely to be derived; and (2) the valuation of costs and benefits requires estimates and judgments.

The City will engage an external auditor for an annual independent review to assure compliance with policies and procedures.

The Finance Director will report quarterly to the City Council on the total of all funds invested and the total interest received on all securities year to date.


All City investments and deposits shall be those allowable by Minnesota Statutes Chapter 118A and amendments thereto. Included as allowable are the following:

• Federal securities, which include treasury bills, notes and bonds, as well as bonds and notes issued by U.S. Government agencies such as the Small Business Administrations or GNMA (Ginnie Mae), or by U.S. Government instrumentalities such as FNMA (Fannie Mae), the Federal Home Loan Bank, the Federal Farm Credit Bank or FHLMC (Freddie Mac);

• State and local securities, which include bonds and other debt instruments issued by cities, counties, states or other governmental units, subject to rating requirements;

• Commercial paper, subject to rating requirements;

• Certificates of Deposit issued by U.S. Banks fully insured by the FDIC;

• Money Market Mutual Funds, subject to rating requirements; and

• Government Investment Pools, including the 4M Fund

The City will not purchase securities that are considered highly sensitive, securities that could expose the City to foreign currency risk, or derivatives.

In accordance with MN Statutes 118A, collateralization will be required on all demand deposit accounts, including checking, savings, and money market accounts, and non-negotiable certificates of deposit in excess of federal deposit insurance.

State law defines the types of securities that a financial institution may pledge as collateral for public deposits. These securities include:

• United States Treasury Issues

• Issues of US Government Agencies and Instrumentalities

• Obligations of State and Local Governments

• Time Deposits (Certificates of Deposits fully insured by the federal deposit insurance company or federal agency).

Since the amount a public entity has on deposit will vary from time to time, the financial institution needs sufficient amounts of pledged collateral to cover 110% of the uninsured amount on deposit during peak deposit times.


The City will attempt to diversify its investments according to type and maturity. The portfolio, as much as possible, will contain both short-term and long-term investments. The City will attempt to match its investments with anticipated cash flow requirements. Extended maturities may be utilized to take advantage of higher yields.


Officers and employees involved in the investment process shall refrain from personal business activity that could conflict with the proper execution and management of the investment program, or that could impair their ability to make impartial decisions.


Annually, the City Council will designate by resolution depositories, broker dealers and financial institutions authorized to provide banking and investment services to the City. Municipalities must obtain from their brokers certain representations regarding future investments. Pursuant to Minnesota Statutes 118A, the City shall provide each broker with the City’s investment policy, and the securities broker shall submit a certification annually to the City stating that the officer has reviewed the investment policies and objectives, as well as applicable state law, and agrees to disclose potential conflicts of interest or risk to public funds that might arise out of business transactions between the firm and the City. All financial institutions shall agree to undertake reasonable efforts to preclude imprudent transactions involving the City’s funds.