Fort Walton Beach Council agenda — 05-20-08 special agenda - budget policy issues — reading text

62. 1 253. 2 143. 5 d 0 50 100 150 200 250 300 0 25 50 75 100 125 150 SANITATION IM) o Qor+% ir•linn r nllcr+forf 0 25 50 75 100 125 150 175 200 14 of 34 FY 2008 -09 Budget Policy Meeting POLICY DECISIONS Strategic Plan Goals General Fund Reserve Level 16 Cost -of- Living Adjustment 19 Compensation Alternative 21 Healthcare Benefits 22 Defined Contribution Plan 24 Other Issues Separation Incentives 26 Utility Tax Cap 19 Interfund Transfers 31 Outside Agency Funding 33 The consensus of City Council on these issues will assist staff in developing a FY 2008 -09 budget that meets Council' s programmatic objectives within available fiscal resources. 15 of 34 FY 2008 -09 Budget Policy Meeting GENERAL FUND RESERVE LEVEL STRATEGIC PLAN GOAL Policy Decision Should the unreserved /undesignated portion of General Fund reserves be maintained at 30 %? Background 1. Fund balance ( i. e. reserve) serves as a measure of the financial resources available in the General Fund. There are three types of fund balance: a. Reserved — funds committed for identified purposes or required to be segregated ( e. g. encumbrances, Harvey Trust). b. Unreserved /Designated —funds not required to be identified as a reserve fund balance, but a tentative use has already been identified ( e. g. special project carryover, disaster relief). c. Unreserved /Undesignated — funds not required to be on hand and with no particular purpose identified; available for capital projects or to balance the budget. 2. Credit rating agencies monitor fund balance levels and strongly consider unreserved fund balance when determining a local government's creditworthiness. 3. The Government Finance Officer's Association ( GFOA) recommends, at minimum, an unreserved fund balance in the General Fund of no less than 5% - 15% of regular General Fund operating revenues or of no less than 1 - 2 months ( 17 %) of regular General Fund operating expenditures. However, the actual unreserved level should be based on the jurisdiction' s specific circumstances e. g. coastal, volatile revenues). 4. A Florida League of Cities revenues expert recommends a fund balance of 25% - 30% of expenses for coastal and barrier island communities. 5. The City's auditors, O' Sullivan Creel, recommend an undesignated General Fund reserve level of 4 months (33 %) of operating expenses. Discussion 1. A policy governing the level of unreserved fund balance should consider a variety of factors: a. Predictability of Major Revenues 25% of revenues are Ad Valorem taxes, which provide a stable, predictable revenue stream; however, recent property tax reform will decrease this revenue by a yet- to -be- determined amount. 17% of revenues are franchise fees and utility taxes with fees set in 10 -15 year agreements. 13% of revenues are state -shared revenues ( municipal revenue sharing, '/ 2 cent sales tax) based on population; but these revenues vary based on economic conditions and are currently 10% less than last year. Other revenues include user fees, grants, interest, interfund transfers, and fund balance. b. Volatility of Expenditures General Fund expenditures are generally not volatile, though certain operating expenditures may exceed estimates ( e.g. fuel, utilities, overtime). Hurricanes are unpredictable. Hurricane Ivan caused $ 5M in expenses, and the first reimbursement check was not received until 4 months later. The City is still awaiting final reimbursement in the amount of $225K over three years later. c. Availability of Resources in Other Funds The Utilities, Sanitation, and Golf funds currently contribute $ 3. 2M to fund their portion of the City's cost allocation plan and shared expenses. d. Potential Drain of Other Funds The General Fund continues to subsidize the Golf Fund approximately $ 400K annually by absorbing a large portion of the Golf Fund' s cost allocation expenses as approved by City Council during adoption of the rate study in April 2006. 16 of 34 FY 2008 -09 Budget Policy Meeting e. Liquidity Traditionally, the City has invested in the State Board of Administration and certificates of deposit at local financial institutions to ensure the safety of principal and maintain liquidity based on cash flow needs. In the wake of liquidity issues at the SBA, the City now invests in the US Government Fund money market offered by The Reserve through MBIA. The fund is Aaa rated by Moody' s and AAAm by Standard and Poor's. f. Designations The unreserved /undesignated fund balance amount should consider how much of fund balance is unreserved /designated. 2. The General Fund' s level of unreserved /undesignated fund balance remains healthy in terms of several measures: General Fund Reserve Analysis Actual Estimate Benchmark Reserve Levels: FY 2004 FY 2005 FY 2006 FY 2007 FY 2008 GFOA - 15% of operating revenues min.; 33. 8% 28. 9% 47.6% 35.4% 41. 1% should be higher if coastal community GFOA - 17% operating expenses min.; 31. 5% 28.4% 37. 5% 35.4% 32. 0% should be higher if coastal community FLOC revenue expert - 25 % 30% - of 31. 2% 27.6% 36. 5% 34. 1% 31. 2% expenses for coastal community Auditors - 33% of operating expenses 31. 5% 28.4% 37. 5% 35.4% 32.0% Unreserved /Undesignated Fund Balance 5, 279,922 5, 415,597 8, 105, 314 6,740, 055 6, 087,879 Policy Impact 1.1. Unreserved Unreserved / / designateddesignated fundfund balances balances areare adjustedadjusted duringduring preparationpreparation ofof thethe annualannual audit.audit. ForFor FYFY 20072007 twotwo newnew designationsdesignations werewere created created toto accountaccount forfor activityactivity during during thethe year:year: communicationcommunication servicesservices taxtax repaymentrepayment andand bondbond defeasance.defeasance. FundsFunds werewere reallocated reallocated fromfrom unreservedunreserved / / undesignatedundesignated toto unreservedunreserved / / designated designated fundfund balancebalance toto reflectreflect thethe knownknown needneed toto repayrepay excessexcess CSTCST revenues revenues andand defeasedefease thethe 20052005 fairgroundsfairgrounds / / softballsoftball complexcomplex bond.bond. 2.2. Recurring Recurring revenues revenues shouldshould fundfund recurringrecurring expenditures.expenditures. FundFund balancebalance shouldshould onlyonly bebe reliedrelied uponupon forfor oneone - - timetime outlaysoutlays oror capitalcapital projects.projects. 3.3. AnAn appropriation appropriation fromfrom unreserved unreserved / / undesignatedundesignated fundfund balancebalance isis generallygenerally requiredrequired toto balancebalance thethe GeneralGeneral FundFund budget.budget. However,However, higherhigher thanthan anticipatedanticipated revenues,revenues, positionposition vacancies,vacancies, andand delaysdelays inin capitalcapital projectsprojects havehave permittedpermitted thethe GeneralGeneral FundFund toto notnot dipdip intointo reserves reserves inin recentrecent years.years. ItIt isis notnot likelylikely thisthis trendtrend willwill continuecontinue inin futurefuture budgetsbudgets givengiven decliningdeclining revenues,revenues, thethe eliminationelimination ofof vacantvacant positions positions andand possiblepossible personnelpersonnel reductions,reductions, andand barebare