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12-29-08 Common Council Mintues
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12-29-08 Common Council Mintues
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SPECIAL MEETING DECEMBER 29, 2008 <br /> <br /> <br /> <br />Ms. Fanello stated that an unreserved fund balance is simply that portion of a fund’s cash <br />balance that is not formally budgeted or restricted in some manner. An unreserved fund <br />balance may contain portions set aside for cash flow, also know as “cash reserves.” In <br />other words, an unreserved fund balance may be designated which is different that <br />restricted. Besides cash reserves, it may also contain amounts tentatively scheduled to be <br />budgeted in the short term (i.e. capital projects, other unanticipated expenditures not <br />know during the formal budget process.) An unreserved fund balance is calculated by <br />subtracting the fund’s liabilities from the fund’s net assets. <br /> <br />At 12/31/07, the General Fund’s net assets were $35.6 million. Of this $35.6 million, $9.4 <br />million was in receivables, meaning the City was owed this amount as of 12/31/07. <br />Subtracting the $11.9 million of liabilities from the $35.6 million dollars in assets left the <br />City with an unreserved fund balance of $21.5 million. That was one year ago. <br /> <br />The City of South Bend designates 20% of general fund expenditures as a “cash reserve” or <br />an unreserved (not budgeted) fund balance. This equates to approximately two months of <br />expenditures for the general fund. During 2007 the targeted fund balance provided for <br />cash flow purposes was projected at $15.4 million. However, during 2007 this reserve <br />never materialized in cold hard cash until the last quarter of 2007 because the 2007 <br />property tax revenue that should have been received in early 2007 was not received until <br />the end of 2007. It would have been impossible to spend cash in 2007 that did not exist. <br />The City took out a minimum amount of loans in June of 2007 to have enough cash to <br />pay bills throughout 2007 until property taxes could be received. The loans were paid off <br />in the last quarter of 2007. <br /> <br />Also, remember, we always have budgeted capital projects at the beginning of the <br />following year with monies remaining at the end of the previous year. The $21.5 million <br />in the general fund at 12/31/2007 not only included the targeted cash reserve but <br />contained leftover dollars that could fund a capital program for 2008 as well. During <br />2008, additional appropriations of $1.9 million were approved by the Council. Because <br />we have not received cash during 2008 from property taxes, no further appropriations <br />were made during 2008. Currently, we have $0 dollars available for appropriation <br />because we have not received our full tax receipts for 2008. The City does NOT <br />maintain surpluses. Such a thing doesn’t truly exist in government finance because every <br />dollar collected is designated in some manner for expenditures or cash flow management. <br />We are not allowed to collect more than what we need for the budget and an operating <br />balance. This is reviewed by the DLGF on Form 4B. <br /> <br />The Government Finance Officers Association (GFOA) recommends that, “the adequacy <br />of unreserved fund balances in the general fund should be assessed based upon a <br />government’s own specific circumstances…Nevertheless, GFOA recommends a minimum <br />of no less that 5 to 15 percent of regular fund operating revenues, or of no less than one to <br />two months of regular general fund operating expenditures.” <br /> <br />The GFOA also notes that “A Government’s particular situation may require levels of <br />unreserved fund balance in the general fund significantly in excess of these recommended <br />minimum levels.” The comment in the CAAFR that our reserve was healthy was made by <br />our office not the State Board. The State Board does not write the City’s Management <br />and Discussion Analysis section. <br /> <br />Let’s remember that the County has failed to collect property tax revenues on time for the <br />past five years. This significantly changes our approach and method to cash flow <br />management. We must be responsible and conservative to ensure that the City does not <br />overdraw funds. A responsible cash flow policy has saved several hundreds of thousands <br />of dollars in interest for the taxpayers by not having to borrow until June of 2008. Our <br />interest is around $150,000 while other entities have spent anywhere from $600-900,000 <br />in interest. <br /> <br />Once again, the tax bills are late and are later than ever. We won’t receive 2008 proeprty <br />tax revenue until 2009. We are also projecting to receive only 94% of the projected levy <br /> 6 <br /> <br />
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