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HomeMy WebLinkAboutPACKET Town Board Study Session 2016-08-23Tuesday, August 23, 2016 TOWN BOARD 4:30 p.m. – 6:40 p.m. STUDY SESSION Rooms 202/203 4:30 p.m. Fund Balance Policy. (Town Administrator Lancaster & Director Hudson) 5:00 p.m. Dinner Served. 5:15 p.m. Revenue Enhancements. (Town Administrator Lancaster & Director Hudson) 6:15 p.m. Trustee & Administrator Comments & Questions. 6:25 p.m. Future Study Session Agenda Items. (Board Discussion) 6:40 p.m. Adjourn for Town Board Meeting. Informal discussion among Trustees concerning agenda items or other Town matters may occur before this meeting at approximately 4:15 p.m. AGENDA 1       2 To: Honorable Mayor Jirsa Board of Trustees From: Frank Lancaster, Town Administrator Date: August 23rd, 2016 RE: Fund Balance Policy Objective: To discuss the Board’s policy regarding maintaining a minimum fund balance, particularly in the General Fund, to provide for financial security in the case of unforeseen circumstances, such as natural or economic disasters. Present Situation: In a broad perspective, the purpose of having a minimum unrestricted fund balance is to have a rainy day fund capable of maintaining basic Town services in the event of an emergency or other unforeseen circumstance that impact the Town’s ability to collect revenue. The discussion of adequate fund balance reserve is a question of risk tolerance and management, vs using funds supplied by the citizens to provide services. Currently the Town Board has adopted a policy of maintaining a minimum balance in the general fund of 20%. Most municipalities have some type of minimum fund balance policy similar to this. The norm in the industry is to consider the fund balance, as expressed in the end of year Comprehensive Annual Financial Report. This number is also used by Bond rating agencies as a measure of the financial health of the organization. Bond rating agencies become concerned when the audited fund balance unrestricted reserve drop below 10%. Most municipal polices specify minimum annual fund balance reserves from 15- 40%. The fund balance policy has been interpreted and calculated as: •Specific to the General Fund •Includes one time capital expenditures in the denominator. •Includes all unreserved and unassigned fund balance while also including the TABOR 3% reserve. •Excludes any reserved or assigned future fund balance usage, including fund balance usage for the upcoming adopted budget. •Is specific to the audited end of year fund balance as of December 31st 3 Due to the seasonality of the Town’s sales tax revenue, the actual unrestricted fund balance fluctuates considerably throughout the year, hitting a low point in mid- summer. As a statutory Town, our sales tax is collected by the State and remitted back to the Town so there is about a 45 -60 day lag time involved. This number can also be greatly affected by the inclusion of one time capital project funding which increases the denominator and thus increases the amount required in the unrestricted reserves to meet the 20% requirement. The calculation does not compensate for grant revenue that may partially or fully offset the capital expenditure. This also can greatly increase the amount needed to maintain the 20% reserve. For example, if the Town were to receive a $15 million dollar grant for flood mitigation projects, if these were not excluded from the fund balance calculations, the Town would have to increase the general fund unrestricted fund balance by $3 million dollars during that time period. It would be prudent to exclude any capital projects and grant funded projects from the calculation of general fund unrestricted reserves. Cash on Hand – The cash reserves and cash on hand available for Town operations is not the same thing as General Fund Balance. The Town budget is made up of many funds, and the cash on deposit includes funds from the General Fund, Utilities, special revenue funds and internal services funds. From a cash flow perspective, these funds are aggregated within a pooled checking account and available for satisfying financial obligations of the Town. The allocation of the checking account between funds is maintained through the accounting records. Insurance – Maintaining a minimum fund balance is a way of insuring against unforeseen incidents. The Town maintains traditional insurance which protects the Town from loss. In an event such as the 2013 flood, the Town did not have to fully rely on accumulated fund balances to respond to the losses and damages from the flood. Our insurance through CIRSA covered a large part of our losses and protected the community, with the Town only required to pay the normal deductible amounts. If we didn’t have adequate insurance, we would need a much higher amount of reserve funds, resulting in the Town self-insuring against loss. By having adequate insurance, the Town is able to put more funds into services and not into unrestricted reserves. Other Funds: Most discussions about a minimum fund balance are specific to the General Fund. However, reserves for the other Town funds should also be addressed within Town Board policy, and clarification would be useful. Internal Service Funds: Some of these, such as the medical insurance fund, have required reserve amounts separate from any board policy. We must adhere to these limitations. Project Funds: Funds for specific projects, such as the 1A funds that are ear- marked for the Community Center or Street Improvements should not have a minimum fund balance requirement. The purpose of these funds are not to fund ongoing operations, but to pay for specific projects. Once those projects are 4 complete, the balance in these funds should be $0. Requiring a fund reserve in these cases would only reduce the amount available for the project. Utilities – Both Water and Light and Power funds are enterprise funds and operate similar to a private businesses. These utilities do have outstanding revenue bonds which require specific bond reserves to insure the ability to repay the bond holders. Reserves required for the enterprise funds should be unrelated to those of the General Fund. Proposal: n/a – discussion item only. Some potential areas for discussion. Should the fund balance be calculated on a monthly or more frequent basis and should the 20% (or other) minimum fund balance be applicable at all times? •This would require significant budget modifications and reductions in operating expenditures in order to fund the higher level of fund balance reserve. In lieu of changing the required general fund unrestricted reserve, should the Board adopt a minimum cash position for the Town? If so, what cash deposits should be considered in this requirement? •This would need to define the minimum cash on hand, and would be a new policy for Board consideration Advantages: n/a Disadvantages: n/a Level of Public Interest High Supportive documentation attached and supplied at the study session. 5       6 Effective Period: Review Schedule: Effective Date: References: FINANCE 660 Fund Balance Policy 1.PURPOSE The purpose of this policy is to establish appropriate levels of reserves (fund balance) for each fund within the Town’s operations, recognizing the unique needs and differing situations for the various funds. 2. POLICY 1.Definitions: a.Fund balance is the net position of a governmental fund (difference between assets, liabilities, deferred outflows of resources, and deferred inflows of resources), 2012 GAAFR, p1066. Fund balance is the cumulative difference over time of all revenues and expenditures. Fund balance is accumulated when revenues exceed expenditures and decreased when revenues are less than expenditures. It serves as a measure of financial resources available for current operations. Available fund balance can be dramatically affected by levels of restriction on a fund (see Supplementary Information section of policy). b.Fund balance percentage is defined as “unassigned fund balance divided by total expenditures”. TABOR reserves may be used as part of the calculation (added to numerator). 2.Specific Fund Balance policies a.Governmental Fund Types i.General Fund – Town Board has established that fund balance percentage should not fall below 20%. This provides a minimum of 3% as the Tabor reserve and 17% for economic downturns and other financial emergencies that may result from unanticipated disasters. General Fund fund balance percentage can be dramatically affected by timing resulting from grant-related incomes and expenditures. Grant income/expenditures may be taken into account when internally calculating fund balance percentage. ii.Capital Fund (Community Reinvestment) – In general, no minimum reserve requirement. Funds can be spent to zero balance annually. 7 Fund balance should never be less than the total of funds collected, but not yet spent, that are restricted for a specific purpose (bond proceeds, grants, donations). iii.Special Revenue Funds (Conservation Trust, Open Space, Emergency Response, Community Center, Trails, Streets) – In general, no minimum reserve requirement. Funds can be spent to a zero balance annually. Fund balance should never be less than the total of funds collected, but not yet spent, that are restricted for a specific purpose. b. Proprietary Fund Types – Enterprise i.Light and Power Fund – 1.The L&P Fund has bond reserve requirements (restricted funds) of 1.25 ((total revenues – total expenditures + capital + future vehicle replacement + capital-related engineering costs)/debt service). The Town also seeks to maintain a self- imposed 90-day operating coverage ratio of > 1.00, as defined by ((fund balance / ((total expenditures – capital – future vehicle replacement – capital-related engineering costs) x .25). 2.The L&P Fund seeks to maintain and replace its infrastructure, through rate studies/implementation, at a pace that at least matches asset depreciation rates. ii.Water Fund – 1.The Water Fund has operations and maintenance (O&M) requirements (restricted funds) as defined by the Water Loan covenants. The Town also seeks to maintain a self-imposed debt coverage ratio of 1.10 (same definition as in L&P Fund). 2.The Water Fund seeks to maintain and replace its infrastructure, through rate studies/implementation, at a pace that at least matches asset depreciation rates. c.Proprietary Fund Types – Internal Service i.Medical Insurance Fund – This fund is designed to cover premiums, claims and other operating expenses related to the Town’s self- funded plan to provide employees medical and dental insurance. Employees and user departments are charged appropriately to cover these costs. Reserves shall be maintained at between 30%-40% of the 3-year rolling average of annual claims. ii.Fleet Fund – This fund is designed to provide for ongoing maintenance and repair of the Town (and other contracted) fleet of vehicles. The fund is designed to cover its operating and capital costs annually through charges for services to the user departments. Due to potential fluctuations in operating costs for fuel and unexpected repairs, etc., the Fleet Fund shall maintain an operating reserve of at least 10%. The Fleet Fund should also maintain a 8 capital replacement program commensurate with the rate of depreciation within the Fund. iii.IT Fund – The IT fund is designed to provide ongoing upgrades and maintenance to the Town’s IT infrastructure and operating systems. The fund is designed to cover its operating and capital costs annually through charges for services to the user departments. Reserves shall be maintained between $100,000-$200,000 to allow for emergencies or unanticipated technology needs. Additional funds may be reserved in recognition of reserved/restricted broadband monies received. The IT Fund should also maintain a capital replacement program commensurate with the estimated replacement costs of existing equipment. iv.Vehicle Replacement Fund – This fund is designed to provide replacement vehicles to appropriate user departments. Funds are accumulated at depreciation rates equal to 3% per yr / 25% maximum for life of vehicle, of purchase price of the vehicle. Reserves will fluctuate based on the replacement schedule, but the unrestricted reserve balance should maintain a balance of at least 15% of the fleet replacement value. d.Fiduciary Fund (Theater Fund) – These funds are held by the Town in a fiduciary capacity and are available for the purpose of the construction of a performing arts facility. Supplementary information: 3.Fund Balance Classifications: The appropriate fund balance classifications shall be included in each governmental fund as necessary or required by GAAP. In the CAFR, all governmental funds report various fund classifications that comprise a hierarchy primarily based on the extent to which the Town is bound to honor constraints on the specific purposes for which amounts in those funds can be spent. The Town may or may not report all fund balance types in any given reporting period, based on actual circumstances and activity. It is not expected or required that all funds report all possible fund balance classifications. Provisions of GASB 54 need not be applied to immaterial items. Policy cannot consider every situation that could occur; therefore, the Finance Director or designee shall have discretion to deviate should circumstances warrant. However, the following descriptions are a guideline of what can be expected to be appropriate in each fund balance classification. The categories within each classification will be reported in alphabetical order and not listed in any other order of significance. a.Non-spendable Fund Balance – The portion of fund balance that cannot be spent because it is either not in a spendable form (not expected to be converted to cash) or is legally or contractually required to be maintained 9 intact (corpus or principal of a permanent fund). Non-spendable amounts should not be reported in a fund if the proceeds from the collection, conversion or sale of the asset are restricted, committed, or assigned. In such a situation, they should be included in the appropriate fund balance classification (restricted, committed or assigned) rather than as non- spendable. i.Advances to Other Town Funds – The amount any Town fund owes the General Fund since the payments back to the General Fund will be available for immediate appropriation by the Board for any purpose. ii.Inventories – The value of inventories that are not expected to be converted into cash. iii.Long-term Receivables – Long-term receivables for loans and notes, if not setup with an offsetting liability. iv.Prepaid Items – The value of prepaid assets. v.Property Acquired for Resale – The value of property acquired for resale. b.Restricted Fund Balance – The portion of fund balance constrained for a specific purpose by external parties (creditors-debt covenants, grantors, contributors, or laws and regulations of other governments), constitutional provisions, or enabling legislation. Effectively, restrictions on fund balance may only be changed or lifted with the consent of the resource providers. i.Capital Projects – Any amounts restricted by federal, state, or local governments or by enabling legislation for capital projects. ii.Citizen Initiatives – Any amounts restricted by citizens through enabling legislation. iii.Debt Service – Any amounts required to be held according to creditor requirements. iv.Intergovernmental Agreements - Unspent intergovernmental grant/allocation/contract funding that must be used for specific programs as stipulated by the agreement. This includes any matching funds needed to spend the funds. If a deferred revenue amount has been recorded for any unearned revenue, this would result in no fund balance to report. v.Legislative Restrictions – Any amounts restricted by federal, state, or local governments or by enabling legislation other than citizen initiatives or restrictions for capital projects. vi.TABOR Reserves – As set forth in the Town’s Budget Preparation and Management Policies 180.1D, Section III (reference B), Amendment One to the state constitution (Article X, Section 20 Taxpayer’s Bill of Rights), passed by voters in 1992, requires that reserves equal to 3% of the fiscal year spending be established for declared emergencies. 10 c.Committed Fund Balance – The portion of fund balance that can only be used for specific purposes according to limitations imposed by the Town Board by majority vote at a public meeting prior to the end of the fiscal year. The Board’s commitment will therefore constitute “committed funds,” a designation which will follow the funds even when transferred to another special revenue fund. If the actual amount of the commitment is not available by the end of the fiscal year, the actual amount should be calculated as soon as information is available but no later than March 1st of the subsequent year. The constraint may be removed or changed only by the same formal action of the Town Board. The restricted or committed proceeds of specific revenue sources should be expected to continue to comprise a substantial portion of the inflows reported in the fund. Other resources (eg. investment earnings, transfers in) also may be reported in the fund if those resources are restricted, committed, or assigned to the specified purpose of the fund. The Town should discontinue reporting a special revenue fund, and instead report the fund’s remaining resources in the General Fund, if the Town no longer expects that a substantial portion of the inflows will derive from restricted or committed revenue sources. i.Capital Projects - Any unspent funds for a Board approved ongoing capital project that remain at fiscal year-end. This does not necessarily mean the assets will be capitalized. ii.Other Commitments – Any other funds approved by the Board using fund balance reserves. These will be reported by functions: general government, health and human services, judicial and public safety, recreation, or streets and highways. d.Assigned Fund Balance – The portion of fund balance set aside for planned or intended actions. The intended use may be expressed by the Board of Town Trustees or other individuals delegated by the Board (Town Manager, Budget Manager, or Financial Services Director) to assign funds to be used for a specific purpose. Fund balance may be assigned after the end of the reporting period any time prior to March 1st of the subsequent year. In governmental funds other than the general fund, assigned fund balance represents the amount that is not non-spendable, restricted, or committed. This indicates that resources in these funds are, at a minimum, intended to be used for the purpose of that fund. Assigned funds cannot cause a deficit in the unassigned fund balance. i.Advances to Other Town Funds – The amount any Town fund owes another Town fund besides the General Fund for an advance. Advances to other Town funds should be reported as Assigned since the payments back to those funds will be used for the purpose of that fund. ii.Capital Projects – The estimated cost of planned or desired, but not approved, specific projects as requested by the Board of Town 11 Trustees or other authorized individuals. This does not necessarily mean the assets will be capitalized iii.Subsequent Year Expenditures – Appropriation of existing fund balance to eliminate a projected budgetary deficit in the subsequent year’s budget. This includes any carry-over funds which are intended to be used for a specific purpose. iv.The adopted budget resolution generally authorizes a government to spend budgeted revenues and other financing sources and, therefore, does not impose constraints on the use of existing resources. However, if a portion of existing fund balance is included as a budgetary resource in the subsequent year’s budget to eliminate a projected excess of expected expenditures over expected revenues, then that portion of fund balance (in an amount no greater than is necessary to eliminate the excess) should be classified as assigned. The amount should not be classified as committed because the Board of Town Trustees does not have to take formal action to remove or modify that specific use – the purpose of the assignment expires with the appropriation. e.Unassigned Fund Balance – This is the residual portion of General Fund balance that does not meet any of the above criteria. It represents resources available for immediate appropriation by the Board for any purpose. The Town will only report a positive unassigned fund balance in the General Fund. Although there is generally no set spending plan for the unassigned portion, there is a need to maintain a certain funding level to cover unexpected expenditures and revenue shortfalls. In other funds, the unassigned classification should be used only to report a deficit balance. 4.Order of Fund Balance Use - When multiple categories of fund balance are available for expenditure, the Town will start with the most restricted category and spend those funds first before moving down to the next category with available funds. Therefore, fund balance is generally depleted in the order of restricted, committed, assigned, and unassigned. For example, if a construction project was being funded by bond proceeds and assigned fund balance, the Town would first use the bond proceeds to pay expenditures since use of bond proceeds is more restrictive than use of assigned fund balance. One exception is if the restricted funds have legal requirements that disallow it being spent first. 12 3.PROCEDURE Funds are reviewed annually for policy compliance following production of the CAFR. Fund balance policy compliance is a required component of the annual Budget process. _____________________________ Bill Pinkham, Mayor _____________ Date 13 APPENDIX 1 - FORMS a.Form 1 14 To: Honorable Mayor Jirsa Board of Trustees From: Frank Lancaster, Town Administrator Date: August 23rd, 2016 RE: Discussion of Revenue Enhancements for Town Operations Objective: This is a discussion item only and an opportunity for the Board to discuss Town revenue and potential areas for the Town to increase revenues to support community services. Present Situation: Currently the Town is supported largely by sales tax revenue. The Town has one of the lowest property tax mill levies in the state, and has various fees revenues as well. Proposal: n/a – discussion item only. Some potential areas for discussion that impact Town revenue: •Annexation of commercial properties within the Estes Valley •Special purpose districts DDA DBA URA •Fees Storm water Utility Admission fees Development fees •Marijuana Dispensaries •Use Tax •Paid Parking Advantages: n/a Disadvantages: n/a Level of Public Interest High 15 16 August 30, 2016 Board/County Study Session – Vacation Homes September 13, 2016 Agenda Setting Process Discussion of Policy Governance Monitoring Reports Format and of Board Policies How the Board handles off cycle requests for funding from outside organizations September 27, 21016 Development of Annexation philosophy and policy Final review of 2017 Strategic Plan and Map October 11, 2016 How to do evaluations of the Town Attorney and the Municipal Judge October 25, 2016 Discussion of Regional Hydrology Study Items Approved – Unscheduled: (Items are not in order of priority) Discussion of Town policy prohibiting marijuana dispensaries Review the proposed draft of the revised Sign Code Short update on the Downtown Neighborhood Plan Discuss the Role of Town Government in economic development as it relates to the Estes Valley EDC and other organizations Briefing on storm drainage and flood management issues and management options. Discussion of Storm Water Utility. Broadband Issue Final review of 2017 Strategic Plan and Map Study Session Items for Board Consideration: Future Town Board Study Session Agenda Items August 9, 2016 17