Financial Policies

Background

The following general principles have been followed in the financial management of the City of Springfield and in the development of the annual budget. These policies have been developed to guide the City in delivering a consistent level of service, while maintaining a stable financial position and an equitable tax structure.

The discussion of these policies will provide more information to citizens, Council members, and city employees – all interested stakeholders in the budget. Communications with these groups will improve understanding of the resource allocation decisions and will promote accountability.

Balanced Budget

To provide for a continuing level of government services and financial stability, the City of Springfield operates with a balanced operating budget that supports current expenditures with current revenues. Current revenues are defined as taxes, charges and fees, intergovernmental revenue, interest, and other miscellaneous revenue. Current expenditures are defined as personnel, supplies, services and general operating equipment. The operating budget does not include major capital equipment and capital improvement projects. These projects and costs are included in the 2023-2028 Capital Improvement Program (CIP). Several projects are highlighted in the Capital section of the budget.

The City is committed to meeting this policy under normal circumstances. It is recognized there may be times when it is advisable and necessary to use the cash reserves to balance the operating budget. If the annual budget requires the use of fund balance to match operating revenue and expenses, the amount of the fund balance used and the purpose for which it is appropriated shall be identified in the annual budget message.

Asset Inventory

The City Council and management of the City of Springfield recognize an accurate inventory of major capital assets and regular maintenance are important elements of the capital improvement plan. The Public Works Department maintains a database of all major capital assets within the City of Springfield. The database includes a complete inventory and condition assessment of major capital assets. The condition assessment is performed and recorded on a regular basis. This assessment is used to determine the replacement and maintenance schedule for the assets. This information is used to develop a Capital Lifecycle Replacement program. This schedule is coordinated with available funding as part of the development of the annual budget and the Capital Improvements Program.

Diversification of Revenue

Sales tax is the primary source of revenue for the City of Springfield. Sales tax comprises 57.2% of the revenue for the General Fund and is a major source of revenue for capital improvements and law enforcement.

When a new revenue source or a change in fees is considered, the effect this change will have on the balance of the revenue structure shall be considered. The City will continue to look for sources of revenue to improve the diversification in the revenue structure.

Charges for Municipal Services

The City of Springfield charges fees for municipal services that are voluntary in nature and benefit specific individuals. The most efficient use of City resources is achieved when the fee for these services pays for the cost of providing the service. When determining the charges for municipal services, the goal is to maximize cost recovery consistent with City Council direction. The following guidelines shall be used in evaluation of fees:

• The Finance Department shall review one-third of charges for municipal services annually on a rotating basis. The two-thirds of fees not reviewed will be adjusted by the Consumer Price

Index annually to keep up with inflation until a full review is complete.

• Any efficiencies achieved in the delivery of services shall be accompanied by a reduction in the fee for providing the service. The review process shall not provide an automatic mechanism

for passing along inefficiencies that may exist in the system.

• Recommended fee changes are presented to the Finance and Administration Committee of City Council. Fees are expected to maintain 100% cost recovery except in instances of

Hazelwood Cemetery and Springfield-Greene County Health Department fees. In the case of Hazelwood Cemetery, these fees must be sensitive to the local market rates. Some Health

Department fees are set below cost recovery for public health and welfare purposes such as vaccinations for food handlers and animal vaccinations and turn-ins.

Non-Recurring Revenue

Generally, annual revenue of the City can be classified as either recurring or non-recurring. Examples of recurring revenue are sales tax, property tax and fees for services. Although the level of revenue may be subject to economic conditions, it is relatively certain to be available at some level from year to year. One-time revenue (or non-recurring revenue) may be generated from grants, refunding of debt, the sale of fixed assets, carryover funds or other sources. This revenue may be available for more than one year but is not considered a permanent source of funding.

To ensure the City of Springfield can provide a consistent level of services, and to avoid disruptive effects on the community, the use of non-recurring or one-time revenue should generally be limited to non-recurring expenses. Examples of proper use of this revenue are land acquisitions, major capital purchases, start-up costs for new programs, and stabilization funds for short periods of time when expenditures exceed revenue. Major capital expenditures that will significantly increase operating expenses should have a long-term sustainable revenue source. Grant applications should be based on meeting the City’s needs, not just the availability of grant funds. Many capital expenditures are funded by a dedicated tax, such as the 1/4 cent capital improvement tax and the 1/8 cent Transportation sales tax. In these cases, the proposed expenditure is reviewed to confirm it is on the list of voter-approved projects and meets the intent of the tax.

Use of Unpredictable Revenues

Sales tax is a major revenue source for the City’s general fund, generating approximately 57% of total revenue. Sales tax revenue is dependent on such factors as the local and national economy, energy prices, the availability of local retail opportunities, the impact of non-taxed online sales and Springfield’s role as a regional economic center. Because of this volatility, the Finance Department monitors sales tax revenue very closely. Each month, the revenue is compared to the budget estimate and reported to City Manager's office, City Council and the public. Variances over 5% are researched to determine if the differences are related to the timing of the collections or a decrease in retail activity. If sales tax revenue exhibits a consistent downward or flat trend, the Finance Department will analyze the total General Fund revenue and expense and consult with the City Manager’s Office. Departments may be asked to limit expenses for the remainder of the fiscal year and/or other actions may be initiated. The General Fund operating reserve may also be utilized to cover a revenue shortfall.

Reserve for Operations-“Rainy Day” Fund

The City recognizes the need to maintain adequate cash reserves and to provide an appropriate level of service funded from annual revenues. To balance these needs, and to maintain the City’s credit rating, a reserved fund balance of 20% of operating revenues will be maintained in the General Fund. In addition to providing financial stability, the reserved fund balance provides the City with resources to achieve its objectives and the flexibility to respond to unexpected opportunities or expenses. Financial policies as required by the Governmental Accounting Standards Board Statement No. 54, “Fund Balance Reporting and Governmental Fund Type Definitions” was adopted by City Council June 13, 2011, per Special Ordinance No. 25919.

Undesignated Reserves

In addition, the City may commit additional fund balance over 20% for capital projects and other one-time expenditures. This additional fund balance is intended for:

• One-time expenditures that do not increase the City’s operating budget

• Implementation of new programs or other projects that will be self-funding or can be fully supported by the operating budget within three years

If the unreserved fund balance falls below 20% of operating revenues, a recommendation shall be developed to restore the fund balance to the appropriate level within two years.

Enterprise Funds and Special Revenue Funds

Enterprise Funds and Special Revenue Funds of the City of Springfield will maintain a positive retained earnings position and shall provide sufficient reserves for emergencies and reserve shortfalls.

Internal Service Funds

The City of Springfield shall not regularly maintain a positive retained earnings position in internal service funds. If an internal service fund begins to accumulate a significant amount of retained earnings, the City will perform a comprehensive analysis of the associated fee structure.

Debt Service Funds

The City shall maintain sufficient reserves in debt service funds, which equal or exceed the reserves required by bond ordinances.

Compensation

The City of Springfield recognizes the ability to provide quality services to the community is directly related to the quality of the City’s employees. And the quality of the employees is directly related to the City’s ability to recruit and retain high-quality personnel. Competitive pay and benefits are a major factor in attracting and retaining qualified employees.

The City of Springfield surveys employee pay and benefits of local organizations and several other cities having characteristics like Springfield (“Benchmark Cities”). The goal is to be competitive with the benchmarked cities and the local market. Generally, the City tries to keep salaries in the middle third of the benchmark cities range. The City is currently negotiating collective bargaining agreements with the four established employee union groups. The impact of the final agreements to the FY2024 budget are unknown currently.

Cost Effective Services

The City will seek the best service level at the least cost through City forces, private sector contracts or Not-for-Profit (NFP) contracts. Contracts for significant private sector services will include a formal process ensuring a level playing field for the private sector to submit competitive bids. Evaluating the need for NFP contracts will include how well they complement or extend current City services and how well they fill an under-met City priority or community need that is not otherwise being met. Any contracts with NFP will include: specific services to be provided; number of volunteer hours; community financial support; and the requirement of annual financial services and accomplishments report. The City has implemented an application process for non-profits seeking funding. During years when funds are available, funds will be awarded based on established criteria and will be subject to appropriation in the annual budget.

Budgetary Compliance

The City of Springfield is required by the City Charter to have an existing appropriation before expenditures can be made. The Finance Department maintains controls to prohibit a department from spending more than their annual budget. Departments may transfer appropriations between expenditure categories except for salary and benefits.

The Budget and Evaluation division of the Finance Department is responsible for analyzing actual revenue and expenses, and monitoring compliance with the operating budget. Each department is assigned a budget analyst. The analyst reviews the department’s monthly budget, communicates budget concerns to the department and processes administrative budget adjustments, if needed. Monthly, a revenue and expense analysis is prepared for the City Manager’s Office and is provided to City Council. This report compares actual revenue and expenses to budget and highlights any issues for concern.

Major Capital Assets

The Public Works Department maintains a database of all major capital assets within the City of Springfield. The database includes a complete inventory and condition assessment of major capital assets. A condition assessment is performed and recorded on a regular basis. This assessment is used to determine the replacement and maintenance schedule for the assets. This schedule is coordinated with available funding as part of the development of the annual budget.

A lifecycle budgeting plan has been developed. This plan identifies major capital equipment that should be replaced each year. With the renewal of the Level Property Tax measure in November 2017, portions of the lifecycle budgeting plan have been funded.