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6.3. SR 03-11-2013 �i ilk _ REQUEST FOR ACTION River TO ITEM NUMBER Mayor and City Council 6.3 AGENDA SECTION MEETING DATE PREPARED BY Work Session March 11, 2013 Tim Simon, Finance Director ITEM DESCRIPTION REVIEWED By Financial Management Policies Update Cal Portner, City Administrator REVIEWED BY ACTION REQUESTED Review update and consolidation of city financial management policies. BACKGROUND/DISCUSSION One of the Finance Department goals for 2013 was to update and consolidate our financial management policies. Previously,we had many stand-alone policies that were amended and adopted at various times. By combining them into a single-source document,it allows for easier reference, review, and updating. We will review these in two meetings; this review will cover updates to all policies except public purpose expenditure, travel reimbursement, and fund balance policies which will be reviewed at the worksession in April. During our recent bond rating call with Standard and Poor's, they increased the city's financial management assessment from "good" to "strong,"which is the top level. This increase was due in part to our strong policies and the continual review and update of these policies. The update and modifications were done after reviewing standards and best practices recommended by the Government Finance Officers Association (GFOA), and a review of policies by other cities. Items underlined are modifications or additions from our old policies. Relative Importance of Financial Policy Types (GFOA,financial policies pg 29) Essential policies Highly advisable policies Fund balance and reserves Accounting and financial reporting Operating budget Revenues Capital budgeting and planning Internal Controls Debt management Expenditures Long-range financial planning Purchasing Investment Risk Management Economic Development Financial Management Policies (change summary) Purpose Section P a W I R E D 0 y N:APublic Bodies\City Council\Council RCA\Agenda Packet\03-11-2013\Financialpoficy-update.docs INATUREI • New section added to provide guiding principles. Objectives • New section added to provide reasons for having policies. Revenue and Expenditure • Additional information about revenue and expenditure policies. Utilities • No significant changes. Cash Management • Additional information about processes with cash on-hand. Investments • No significant changes. Capital Improvement • No significant changes. Debt • No significant changes. Accounting,Auditing and Financial Reporting • Added a section on attempting to maintain the GFOA Certificate of Excellence in Financial Reporting. Risk Management • New section on risk management. Operating Budget • Added section on our updated council contingency of.5%. • Added section on unanticipated shortfall of revenue and recommendation from Finance Director. • Added section on describing major goals to be achieved and the services and programs to be delivered. • Added section that all new programs or services,the city will utilize cost/benefit analysis. • Added section that we will attempt to maintain the GFOA Distinguished Budget Presentation Award. Purchasing • Added complete new section to provide for guidance and efficiency of purchasing for city departments. Department directors reviewed and fully support how the policy is outlined. • With the bid limit changing to $100,000 we are still recommending all purchases $50,000 and over for Council approval. This was previously at$25,000 when the bid limit was $50,000. N:\Public Bodies\City Council\Council RCA\Agenda Packet\03-11-2013\Financialpolicyupdate.docx • Purchase order requirement increased from $1,500 to $5,000. At $1,500 many routine purchases required the approval of a purchase order,this is now increased to $5,000 in which quotes are obtained will have a purchase order and department director approval. • New section on professional service contracts. Credit Card Use • New section on credit card use. ATTACHMENTS ■ Draft policies Action Motion by Second by Vote Follow Up N:\Public Bodies\City Council\Council RCA\Agenda Packet\03-11-2013\Financialpolicyupdate.docx �i City of Ells _ _ Financial Management Policies River PURPOSE The City of Elk River is fully accountable to residents and policymakers and seeks to manage all resources responsibly. The adoption of financial policies ensures transparency and accountability and provides a framework for the overall fiscal management of the city to guide the decision-making process. Most of the policies contained herein represent long-standing principles, traditions and practices which have guided the city and have helped maintain financial stability. These financial policies shall be reviewed periodically to determine if changes are necessary. OBJECTIVES • To provide sound principles to guide the decisions of the City Council and management. • To provide both short- and long-term financial stability to city government by ensuring adequate funding for new infrastructure and protecting existing infrastructure. • To protect and enhance the city's credit rating and prevent default on any municipal obligations. • To protect the City Council's policy-making ability by ensuring that important policy decisions are not constrained by financial problems or emergencies. REVENUE AND EXPENDITURE With regard to revenues and expenditures, the city will: • Provide long-term financial stability through sound short- and long-term financial planning. • Estimate annual revenues and expenditures in a conservative manner so as to reduce exposure to unforeseen circumstances. • Project revenues and expenditures over five years and will update the projections each budget process. • Establish user charges and fees when they are determined to be appropriate and the direct benefits are identifiable at a rate related to the cost of providing the service (operating, direct,indirect, and capital) and will review them annually. • To the extent feasible, one-time revenues will be applied toward one-time expenditures or placed into reserves. One-time revenues will not be used to finance ongoing programs. UTILITIES • The City Council sets fees and user charges for municipal sanitary sewer utility and garbage collection. The Utilities Commission sets fees and charges for the water and electric utilities. The city will encourage the Utilities Commission to adopt financial management policies similar to the policies stated in this section. • The city will strive to set user fees for municipal utilities at a level that creates financially sustainable enterprises. Financial Management Policies Page 1 • The fee structure for municipal utilities should produce a net annual surplus of revenues over expenditures after accounting for all operating costs,depreciation of capital assets and payment of debt service. • All municipal utility funds will maintain adequate cash reserves. The reserve needs vary for each municipal utility. The assessment of cash reserves should take into account future capital investments, diversity, and stability of revenues and potential for unanticipated changes in revenues and expenditures. • All utility rates should be reviewed annually to minimize the impacts of rate changes and to ensure adequate long-term funding. • Elk River Municipal Utilities will make an annual contribution to the city. The cash contribution will be based on 3% of gross electric sales within the corporate limits of the city. The City Council will determine the portion of this contribution to be allocated to the General Fund and the Equipment Replacement Fund. • The City Council will determine the chargeback to the Sewer and Garbage funds for administration of these funds. • Any other transfer of equity from a utility fund to the General Fund should only be done on a one- time exception basis, for example, to fund an unusual, unanticipated expense. In no event shall such equity transfers be made in consecutive years. Equity transfers must be approved by the City Council. CASH MANAGEMENT • The city shall pool cash balances from all funds to maximize investment earnings with an exception for legal and/or specific practical requirements that require segregation of funds. • Funds received are to be deposited into an interest-bearing account with the city's currently designated official depository by the next business day. • Cash on hand is to be kept to the minimum required to meet daily operational needs. INVESTMENTS Public funds shall be invested in a manner that provides the highest investment return,at the maximum security in conformance with all state and local statutes governing the investment of public funds while meeting the daily cash flow demands. This policy applies to all financial assets of the municipality. These funds are accounted for in the city's Annual Financial Report and include all city funds with the exception of the Water and Electric Funds, which fall under the investment policy adopted by the Elk River Utilities Commission. The standard of prudence to be used by investment officials shall be the "prudent person" standard,as defined by Minnesota Statute �356A.04, Subd. 2, and shall be applied in the context of managing an overall portfolio. Investment officers acting in accordance with written procedures and the investment policy and exercising due diligence shall be relieved of personal responsibility for an individual security's credit risk or market price changes,provided deviations from expectations are reported in a timely fashion and appropriate action is taken to control adverse developments. Financial Management Policies Page 2 The "prudent person" standard is understood to mean the following: investments shall be made with judgment and care,under circumstances then prevailing,which persons of prudence,discretion, and intelligence exercise in the management of their own affairs, not for speculation, but for investment, considering the probable safety of their capital as well as the probable income to be derived. All investments shall be limited to those permitted by Minnesota Statute �118A. The primary objectives,in priority order, of the City of Elk River's investment activities shall be: 1. Safety Investments shall be undertaken in a manner that ensures the preservation of capital in the overall portfolio. To attain this objective, diversification is required so that losses on individual securities do not exceed the income generated from the remainder of the portfolio. 2. Liquidity The investment portfolio will remain sufficiently liquid to enable the city to meet all operating requirements which might be reasonably anticipated. 3. Return on Investment The investment portfolio shall be designed with the objective of attaining a market rate of return throughout budgetary and economic cycles. The investment strategy will take into account the constraints on risk and cash flow characteristics of the investment portfolio. 4. Maintaining the Public's Trust All officials and employees who are part of the investment process shall seek to act responsibly as custodians of the public trust. Investment officials shall avoid any transaction that might impair public confidence in the municipality's ability to govern effectively. Authority to manage the City of Elk River's investment program is derived from Minnesota Statute §118A. Management responsibility for the investment program is hereby delegated to the Finance Director. No person may engage in an investment transaction except as provided under the terms of this policy and the procedures established by the Finance Director. The Finance Director shall be responsible for all transactions undertaken and shall establish a system of controls to regulate the activities of subordinate officials. Officers and employees involved in the investment process shall refrain from personal business activity that could conflict with the investment program, or which could reasonably cause others to question or doubt their ability to make impartial investment decisions. Employees and investment officials shall disclose to the Finance Director any material financial interests in financial institutions that conduct business within this jurisdiction, and they shall further disclose any large personal financial/investment positions that could be related to the performance of the City of Elk River's portfolio. The Finance Director will maintain a list of financial institutions authorized to provide investment services. In addition,a list will be maintained of approved security broker/dealers selected by credit worthiness,who maintain an office in the State of Minnesota. These may include "primary dealers" or Financial Management Policies Page 3 regional dealers that qualify under Securities &Exchange Commission Rule 15c3-1 (uniform net capital rule). All brokers doing business with the city shall have a Broker Certification form on file with the Finance Director in accordance with Minnesota Statutes �118A.04, Subd 9. All investments must be placed with brokers whose office is in the State of Minnesota. No investments may be made with out of state brokers. Investment instruments authorized and permitted by this policy are as follows: 1. Repurchase Agreements Repurchase agreements consisting of collateral allowable in Section 118A.04. 2. United States Securities Governmental bonds,notes,bills, mortgages (excluding high-risk mortgage-backed securities), and other securities,which are direct obligations or are guaranteed or insured issues of the United States,its agencies,its instrumentalities, or organizations created by an act of Congress. High risk mortgage-backed securities are as follows: a. interest-only or principal only mortgage-backed securities; or, b. any mortgage derivative security that: i. has an expected average life greater than 10 years; ii. has an expected average life that: 1. will extend by more than 4 years as the result of an immediate and sustained parallel shift in the yield curve of plus 300 basis points; or 2. will shorten by more than 6 years as the result of an immediate and sustained parallel shift in the yield curve of minus 300 basis points; or 3. will have an estimated change in price of more than 17% as the result of an immediate and sustained parallel shift in the yield curve of plus or minus 300 basis points. 3. Minnesota Joint Powers Investment Trust Agreements or Contracts for Shares of a Minnesota Joint Powers Investment Trust whose investments are restricted to securities authorized for investment by the government entity and shares of an investment company registered under the Federal Investment Company Act of 1940, whose shares are registered under the Federal Securities Act of 1933, as long as the investment company's fund receives the highest credit rating and is rated in one of the two highest risk rating categories by at least one nationally recognized statistical rating organization and is invested in financial instruments with a final maturity of no longer than 13 months. 4. State and Local Securities State and local government obligations as follows: a. any security which is a general obligation of any state or local government with taxing powers which is rated "A" or better by a national bond rating service; b. any security which is a revenue obligation of any state or local government with taxing powers which is rated "AA" or better by a national bond rating service; and, Financial Management Policies Page 4 c. a general obligation of the Minnesota Housing Finance Agency which is a moral obligation of the State of Minnesota and is rated "A" or better by a national bond rating service. 5. Commercial Paper Commercial paper issued by United States corporations or their Canadian subsidiaries that is rated in the highest quality category (e.g.,A-1,P-1, F-1, or D-1 or higher) by at least two nationally- recognized rating agencies and matures in 270 days or less. 6. Time Deposits Time deposits that are fully insured by the Federal Deposit Insurance Corporation. Bankers acceptances of United States banks. The city shall not purchase investments that, at the time of purchase, cannot be held to maturity. All investments shall be purchased with the intent to hold until maturity. This section shall not be construed to restrict the sale of investments prior to maturity which may be in the best interest of the city. The city shall not invest in Guaranteed Investment Contracts or Reverse Repurchase Agreements. The city shall maintain collateral requirements per Minnesota Statutes. To anticipate market changes and provide a level of security for all funds, the collateralization level will be at least 10% more than the amount on deposit plus accrued interest at the close of the business day. To the extent that funds deposited are in excess of available federal deposit insurance, the government entity shall require the financial institution to furnish collateral security. All collateral shall be placed in safekeeping in a restricted account at a Federal Reserve Bank, or in an account at a trust department of a commercial bank or other financial institution that is not owned or controlled by the financial institution furnishing the collateral. The selection shall be approved by the City of Elk River. Any collateral pledged shall be accompanied by a written assignment to the government entity from the financial institution. The written assignment shall recite that,upon default, the financial institution shall release to the government entity on demand, free of exchange or any other charges, the collateral pledged. Interest earned on assigned collateral will be remitted to the financial institution so long as it is not in default. The government entity may sell the collateral to recover the amount due. Any surplus from the sale of collateral shall be payable to the financial institution,its assigns, or both. Investments may be held in safekeeping with: 1. Any Federal Reserve Bank; 2. Any bank authorized under the laws of the United States or any state to exercise corporate trust powers,including, but not limited to,the bank from which the investment is purchased; 3. A primary reporting dealer in United States government securities to the Federal Reserve Bank of New York; or Financial Management Policies Page 5 4. A securities broker/dealer having its principal executive office in Minnesota, licensed pursuant to chapter 80A, or an affiliate of it,regulated by the Securities and Exchange Commission;provided that the government entity's ownership of all securities is evidenced by written acknowledgments identifying the securities by the names of the issuers, maturity dates,interest rates, CUSIP number, or other distinguishing marks. The city will minimize investment custodial credit risk by permitting brokers that obtained investments for the city to hold them only to the extent there is SIPC and excess SIPC coverage available. Securities purchased that exceed available SIPC coverages shall be transferred to the city's custodian. The city will diversify its investments by security type and institution. In establishing specific diversification strategies, the following general policies and constraints shall apply: 1. Portfolio maturities shall be staggered to avoid undue concentration of assets at a specific maturity sector,with one broker-dealer or financial institution, or any one type of instrument. The maturities selected shall provide for stability of income and reasonable liquidity. 2. The Finance Director shall establish an annual process of independent review by an external auditor. This review will provide internal control by assuring compliance with policies and procedures. 3. The investment portfolio will be designed to obtain a market average rate of return during budgetary and economic cycles, taking into account the city's investment risk constraints and cash flow needs. 4. The Finance Director shall prepare an investment report on a periodic basis and include: a. Listing of individual securities held at the end of the reporting period. b. Listing of investments by maturity date. c. Percentage of the total portfolio which each type of investment represents. d. Market-to-Market analysis. e. Rate of return for the quarter. CAPITAL IMPROVEMENT The city will maintain buildings,infrastructure,utilities,parks, facilities, and other assets in a manner that protects the investment and minimizes future maintenance and replacement costs. The Finance Director will annually prepare and submit to the City Council a Capital Improvements Plan (CIP) for the ensuing five fiscal years. At a minimum,the CIP will include a description of the proposed improvement,the estimated cost,timing and potential sources of funding. If applicable, the CIP will identify implications for the operating budget created by the proposed improvement. In most cases,private developers will be responsible for the construction of streets, sanitary sewer, watermain, and storm water collection systems needed to serve new development. The city may install infrastructure and assess property owners when this approach provides the best alternative. The city will finance street and utility oversizing and trunk utility systems. Financial Management Policies Page 6 The city will maintain a system of capital charges for sanitary sewer and water services. The charges will be collected when undeveloped land is platted and when new users connect to the system. Revenues from the capital charges will be accumulated and used to pay for the capital investment related to the maintenance and expansion of the utility system. The city will strive to maximize the revenues collected from capital charges in order to protect existing utility users from bearing the costs associated with growth. The City Council will work with the Utilities Commission to set capital charges for the water system at appropriate levels. In not less than three-year intervals, the city staff shall evaluate the amount of all capital charges and recommend necessary changes to the City Council and the Utilities Commission. The city will maintain an equipment acquisition and replacement program. The plan shall be updated annually to provide funding for all equipment purchases over $25,000 to be made in the ensuing five fiscal years. All attempts shall be made to fund the program without the use of debt. It is recognized that state- imposed levy limits may create the need to incur debt for equipment acquisition. The city will establish and maintain a program for the construction and maintenance of the municipal storm water management system. Financial projections for the storm water management system shall be updated annually. The city will establish and maintain a program for the maintenance of the municipal street system. The initial sealcoating in new subdivisions will be financed with monies collected for this purpose at the time of original development. Other sealcoating and other maintenance activities will be financed through the General Fund. The city will prepare an ongoing plan for the reconstruction of all city streets and identify a sustainable source of funding for the street reconstruction program. Cashflow projections for street reconstruction projects will be prepared annually to ensure adequate, ongoing funding. DEBT The city debt issuance policy utilizes the following guidelines and practices which were identified through state statutes,bond rating agencies,and the Government Finance Officers Association (GFOA). This policy can be amended by the City Council, but is consistent with general municipal practices at the time of adoption. A. Debt Limits 1. Legal Limits Minnesota Statutes, Section 475,prescribes that outstanding principal of debt cannot exceed 3% of taxable market value. This limitation applies only to debt that is wholly tax-supported. a. The type of debt included is either General Obligation Debt of any size bond issue (G.O.) or Lease Revenue Bond Issues that were over $1,000,000 at the time of issuance. Several other types of debt do not count against the limit,including: i. G.O. tax increment ii. G.O. abatement iii. G.O. special assessment iv. G.O. utility revenue Financial Management Policies Page 7 V. Most HRA or EDA-issued debt is considered to have a separate revenue source other than just taxes and so are excluded from the legal debt limit calculation. vi. HRA and FDA public project revenue bonds or lease revenue bonds with financing lease agreement with a city or county do count against the statutory debt limit. b. Local ordinances do not limit the city's ability to issue debt. 2. Policy Limits Debt will be used only for capital costs. The city will not utilize debt for cash flow borrowing, even though this is allowed by state statutes. a. The CIP shall contain debt assumptions which match this policy and requires a commitment to long-range financial planning which looks at multiple years of capital and debt needs. b. The city shall use G.O. Tax Increment Bonds when development merits special consideration. 3. Financial Limits a. Bond issues may require a special debt levy. The amount of the city's property tax levy dedicated to debt service (principal and interest plus 5% for G.O. Bonds) is limited to less than 20% of the total tax levy. The city-defined tax levy does not include special assessments, tax abatements, or tax increments. b. Pure revenue bond debt for the city shall be used primarily as Lease Revenue Bonds supported by taxes. The city may use revenue bonds for enterprise, electric and water utility operations,but only if debt service coverage achieves investment grade rating from the city's rating agencies. B. Use of Variable Rate Debt and Derivatives 1. The city shall use variable rate debt only if total principal and interest of the debt constitutes less than 20% of the city's total debt payments and only if circumstances dictate the need for a short call date. 2. The city will not use derivative-based debt. C. Debt Structuring Practices 1. G.O. debt shall not exceed 25 years in term. 2. Equipment debt. The goal is to pay for all capital equipment with a useful life of five years or less from cash reserves or annual operating budgets. Capital equipment with a useful life greater than five years may be financed with debt,but the bond term should not exceed 10 years. 3. The city's collective debt goal shall be to amortize at least 50% of its principal within 10 years. 4. The city shall usually issue debt with level principal and interest payments. 5. The city shall have a call date (pre-payment date) of no longer than 10 years on longer term debt and 6 to 8 years on shorter-term debt. Financial Management Policies Page 8 D. Debt Issuance Practices 1. The city shall utilize a rating agency for debt issuance of more than $1million or terms longer than 3 years. 2. The city shall use competitive bidding debt unless the debt is so specialized in its nature that it will not attract more than two bids. 3. Refunding a. Advance refunding bonds shall not be utilized unless present value savings of 4-5% of refunded principal is achieved and unless the call date is within 4 years. Bonds shall not be advance refunded if there is a reasonable chance that revenues will be sufficient to pre-pay the debt at the call date. b. Current refunding bonds shall be utilized when present value savings of 3% of refunded principal is achieved or in concert with other bond issues to save costs of issuance. c. Special assessment or revenue debt will not be refunded unless the Finance Director determines that special assessments or other sufficient revenues will not be collected soon enough to pay off the debt fully at that call date. 4. An outside bond attorney and an independent financial advisor shall structure bond sales. E. Debt Management Practices 1. The city shall invest bond proceeds in a capital project fund. 2. The city shall comply with SEC rule 15(c)2(12) on primary and continuing disclosure. Continuing disclosure reports shall be filed no later than 180 days after receipt of the city's annual financial report. 3. The city shall complete an arbitrage rebate report for each issue no less than every five years after its date of issuance. 4. The city has also adopted post issuance debt compliance policy as a separate policy. ACCOUNTING, AUDITING AND FINANCIAL REPORTING The city will establish and maintain the highest standard of accounting practices,in conformity with Generally Accepted Accounting Principles (GAAP) and provide for the following: • Attempt to maintain the GFOA Certificate of Excellance in Financial Reporting. • Arrange for an annual audit of all funds and account groups by independent certified public accountants or by the State Auditor's Office. • Present monthly a summary of financial activity by major type of funds as compared to budget. Department Directors will review monthly reports comparing actual revenues and expenditures to the budget. Negative projected year-end departmental variances exceeding$5,000 in any revenue or spending category (Personal Services, Supplies, Other Charges and Services, Capital Outlay) will be reported in writing to the Finance Director and the City Administrator. RISK MANGEMENT The city will maintain a Risk Management Program to minimize the impact of legal liabilities, natural disasters or other emergencies through the following acitivies: Financial Management Policies Page 9 1. Loss Prevention. Prevent negative occurrences. 2. Loss Control. Reduce or mitigate expenses of a negative occurrence. 3. Loss Financing. Provide a means to finance losses. 4. Loss Information Management. Collect and analyze relevant data to make prudent loss prevention,loss control and loss financing decisions. • The city will maintain an active Safety Committee comprised of city employees. • The city will periodicall y conduct educational safety and risk avoidance programs,through its Safety Committee and with the participation of its insurers,within its various departments. • The city will maintain the highest deductible amount, considering the relationship between cost and the city's ability to sustain the loss. OPERATING BUDGET The City Administrator will submit a balanced budget in which appropriations do not exceed the total of the estimated General Fund revenue and the fund balance available after applying the General Fund Reserve Policy. • The city will annually budget a General Fund Contingency Appropriation,not to exceed .5% of the total budget, to provide for unanticipated expenditures of a nonrecurring nature. • In the event there is an unanticipated shortfall of revenues in a current year budget, the Finance Director may recommend the use of a portion of the General Fund fund balance,not to exceed the amount available to cash or reserved for working capital or already appropriated to the General Fund current budget. • The budget will provide for adequate maintenance of the capital buildings and equipment, and for their orderly replacement. • The operating budget will describe the major goals to be achieved and the services and programs to be delivered for the level of funding provided. • Before adding a new progam or service, the city will utilize a cost/benefit analysis of outside contractors versus in-house provided services. • The city will attempt to maintain the GFOA Distinguished Budget Presentation Award. • The city will not sell assets or use one-time accounting principle changes to balance the budget for any fund. • The city will provide ample time and opportunity for public input into its budget deliberations each year. • Department Directors shall be responsible for administration of their operating budget. Requests for budget adjustments must be submitted and approved before any program incurs cost overruns for the annual budget period. • The budget shall be amended as needed to recognize significant deviations from original budget expectations. The Council shall consider budget amendments each December. Budget amendments are intended to recognize changes made by the Council during the year,to reflect major revenue and expenditure deviations from budgeted amounts, and to consider year-end budget requests. Budget amendments are not intended to createa budget that matches budgeted revenues and expenditures to actual revenue and expenditures. Financial Management Policies Page 10 ■ Administrative budget amendments may be made throughout the year by Department Directors to adjust line item budgets within their department as long as the total departmental budget does not change. These line item budget changes exclude personal service and capital outlay categories. Administrative budget admendments must be requested in writing and approved by the City Administrator and Finance Director. PURCHASING The goal of the Purchasing Policy is to ensure all purchases are consistent with Minnesota Statutes,to establish internal controls, to maintain the appropriate documentation, and to ensure the best value for the public monM . Purchasing Authority Department Directors or his/her designee are responsible for all purchases. Delegation designation must be communicated to the Finance Department. Directors must sign off all purchase orders,invoices and/or receipts. Purchase Orders must be completed prior to item/service acquisition to ensure accountability provide amount verification, and avoid a misunderstanding with respect to cost between the vendor and the city. Purchasing Thresholds All expenditures up to $50,000 must be within the limits established by the department budget. The thresholds of dollar amounts that have been established either by policy, City Code, or statutory authority for the purpose of purchasing city goods are identified as follows: Purchase Purchase Process Approving Notes Level Required Authority •Written quotes are not requited,but verbal quotes are recommended. Less than Department •At the point of sale,the receipt must be signed by the individual $5,000 Director/Delegate purchasing the item. •The receipt/invoice must also be signed and coded by the department director/delegate. •When there is more than one feasible source of supply for an item,the City shall request written price quotations from at least two $5,000- Purchase Order/ Department sources and shall place the order at the lowest price quoted,provided $2244,,99 99 Quotes Director the items are of comparable quality. •Quote information should be attached to the purchase order. •When there is more than one feasible source of supply for an $25,000- City item,the City shall request written price quotations from at least two $49,999 P.O./Quotes Administrator_strator sources and shall place the order at the lowest price quoted,provided the items are of comparable quality. •Quote information should be attached to the purchase order. •Check the availability of an item through a cooperative purchasing program before obtaining quotes. $50,000- Council City Council •When there is more than one feasible source of supply for an item, $100,000 Approval the City shall request written price quotations from at least two sources and shall place the order at the lowest price quoted,provided the items are of comparable quality. Bids/Cooperative •There are three processes available that would satisfy statutory Above$100,000 Agreements City Council requirements for purchases above$100,000.(See"Purchases Exceeding$100,000"section below for more details. Financial Management Policies Page 11 Competitive Bidding Purchases exceeding$100,000 are subject to the competitive bidding process unless otherwise provided. Sealed bids shall be solicited by public notice at least 10 calendar days before scheduled bid opening following preparation of bid specifications as authorized by the City Council. The successful bid is to be awarded by the City Council to the lowest responsible bidder. Minnesota Statutes 471.345 The following purchases are not subject to Competitive Bidding. 1. Cooperative Purchasing— When the purchase is through a cooperative purchasing organizations in which the city is a member. 2. Non-Competitive Supplies or Equipment When a product or service is available from only one source,the acquisition will be made similar to a purchase between $50,000 and $100,000 except that quotes are not required. 3. Intergovernmental Contracts 4. Real Estate Purchases 5. Emergency Purchases Under Minnesota's Emergency Management Act,the city has the authority to enter into contracts during an emergency without following many normally required procedures. An emergency is defined as "an unforeseen combination of circumstances that calls for immediate action to prevent a disaster from developing or occurring." A disaster is "a situation that creates an actual or imminent serious threat to the health and safety of persons, or a situation that has resulted or is likely to result in catastrophic loss to property or the environment,and for which traditional sources of relief and assistance within the affected area are unable to repair or prevent the injury or loss." During an emergency or disaster, the City Council may waive compliance with the time-consuming procedures or formalities concerning_ 1. The performance of public work 2. Contracting 3. Incurring obligations 4. Renting equipment 5. Purchasing supplies and materials Emergency purchases are only allowed when the mayor issues a proclamation declaring an emergency, and the steps listed in Minn. Stat. § 12.29 are completed. 6. Professional Services Contracts for professional services such as those provided by engineers, attorneys, architects, accountants, and other services requiring technical, scientific or professional training are exempt from competitive bidding requirements. However,the goals to secure professional services remain the same: to ensure all purchases are consistent with Minnesota statutes,to establish internal controls,to maintain the appropriate documentation, and to ensure the best value for the public money. Financial Management Policies Page 12 The following chart identifies the required procedures for professional services contracts. Purchase Purchase Process Approving Voes Level Required Authority •At least two written quotes shall be obtained where there is more $0 Quotes Department than one feasible source. $24,999 Director •In cases where the City has established a pool of qualified consultants,the consultant may be selected from the existing pool. •When there is more than one feasible source,the City shall request written price quotations in the form of a Request for Proposal from at $25,000 Council least two sources. and Above Approval City Council •The quotes shall be submitted in written format•The standard contract shall be awarded to the service provider with the best qualifications and proposal for the specific project. Total cost shall not be the only consideration,but must be included in the analysis of the proposals. CREDIT CARD USE According to Minn. Stat. � 471.382, the City Council may authorize the use of a credit card by any city officer or employee otherwise authorized to make a purchase on behalf of the city. This policy establishes criteria for credit card issuance and credit card use. Authority for Credit Card Holder City staff having authority to make certain purchases will be eligible credit cardholders. Department Directors may request a credit card for city-authorized purchasers when there is a demonstrated efficiency. The Finance Director must review and approve each request before the card is issued. Such requests must include the following information: 1. The name of the user 2. The general reason and types of purchases they will be making 3. Any other information necessary to complete the credit card process The Department Director is responsible for notifying the Finance Director when any changes occur to the cardholder's status. Types of Purchases allowed by Credit Card Purchases must comply with all statutes,rules, and c4 policies applicable to city purchases, specifically- 1. All purchases must be made by the authorized card holder. 2. All credit card purchases must comply with the city's Purchasing Policy guidelines for quotes and bids. 3. All expenditures must be within the limits established by the department budget. Types of Purchases Prohibited Use of a city credit card is prohibited for the following purchases: 1. Personal purchases of any kind. 2. Alcoholic beverages of any kind. 3. Meal purchases. Financial Management Policies Page 13 4. Uniform purchases. If a city employee makes or directs a purchase by credit card that is inconsistent with this policy and/or is not approved by the Council, the employee is personally liable for the amount of the purchase. Procedures and Documentation The Finance Department will receive the monthly bill and the cardholder will receive a copy of the monthly statement of their charges. The cardholder will code and attach invoices and receipts for all charges on the statement and submit all of the documentation to the Department Director or designee b the due date. Payment will be made if the billing matches all completed credit card statements and receipts. Violations Failure to comply with any portion of this policy may result in disciplinary action (up to and including termination) cancellation of the credit card, and legal and financial consequences. Fund Balance Public Purpose Expenditure Financial Management Policies Page 14