12-29-08 Common Council Mintues - Laserfiche WebLink

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