5.6. SR 04-12-2004River
MEMORANDUM
Item 5.6.
TO:
FROM:
DATE:
SUBJECT:
Mayor and Council
Lori Johnson, Finance Director
April 12, 2004
Consider 2003 General Fund Balance Allocation
The Financial Management Plan includes a policy on the General Fund Balance that states
"the General Fund shall have an unreserved balance of not less than 40 percent of the next
year's budgeted expenditures. This calculation is made at the end of each fiscal year." It
goes on to say that the City Council may, at its discretion, allocate any amount over the
minhnum 40 percent to other purposes. The fund balance for December 31, 2003, has been
calculated, and pursuant to policy, the Council mav allocate any part of the balance in excess
of 40 percent prior to finalizing the 2003 comprehensive annual financial report.
Attached is the General Fund balance sheet for the period ended December 31, 2003. The
fund balance is $3,732,049. This is 47.39 percent of the 2004 General Fund budget. Last
year, the fund balance was 41.50 percent of the next year's budget. The policy requires a
2003 fund balance of $3,150,160 to meet the 40 percent mi~mnum; this leaves $581,889
available for allocation by the Council. Hoxvever, the 2004 budget calls for use of rcse~;es of
$117,000 so the amount still available for allocation is $464,889. If 2002's 41.50 percent
balance is maintained, the balance available after rese~wing $117,000 is $346,758.
Thc fund balance increased significantly for several reasons. First, in June major budget
amendments xvere approved to address the state aid cuts approved by the legislature. This
resulted in expenditure cuts and a final amended expenditure budget that was $371,200
loxver than the original budget. Department heads carefully monitored their budgets and
made cuts as necessary to end the year with expenditures approximately $7,000 under
budget. Second, even xvith substantial aid cuts, development and building activiD~ xvas so
high that the total year end revenues exceeded the original budget (prior to aid cuts) by
$163,282. It is difficult to predict building and development revenues since the City has little
control on the number of building permits that xvill be requested in any given year. There
were no rate or fee increases implemented to generate more revenue; this increase in revenue
is shnply a function of thc number of development requests and building permits issued.
There were, hoxvever, some offsetting expenditures to cover overtime for inspectors,
S:\Council\Lori\2004\Gencral Fund Balancel .doc
additional building permit technician hours, and other additional costs for the added
inspections such as fuel and vehicle costs. Third, other revenue increases such as court
fines, fire contracts, and grants also caused revenues to exceed budget esnmates.
As I stated earlier, thc Council may allocate all or part of the fund balance for other purposes
as it deems appropriate by either reserving the amount in the General Fund or by
transferring money to another fund. Since there is no guarantee of an ongoing fund balance
in excess of the minimum rese~we requirement, it is most appropriate to use the funds for
specific uses and not to fund ongoing programs or new programs that xvill require additional
funding above the amount currently available for allocation. Some of the possible uses
include: 1. $18,000 2004 budget addition to pohce personal services for the 2004 COPS
grant match for the grant that xvas just received. 2. Reserwe $60,000 for the 2005 and 2006
COPS grant match. 3. $6,000 2004 budget addition to building and enviromnental personal
services for building inspector intern. 4. $24,000 to purchase 2004 building inspector truck
out of reserves instead of equipment certificates. 5. Reserve $50,000 for the next t~vo
building inspector trucks to be purchased. 6. Reserve funds for future capital equipment for
pubhc safeW and pubhc xvorks so these departments are equipped to handle the increased
groxvth in population and infrastructure that will result because of the increased building and
development acdvit7 in 2003. 7. Reserve funds for infrastructure improvements or building
projects that have no other funding source available and that benefit the entire community.
Finally, in addidon to the items listed, Council members may have many other uses for the
fund balance. The funds can be placed in a reserve fund no~v for future use xvithout
identifying a specific use at this time. This xvould make funds available in the future xvhen
the Council does identify a specific use. Also, keep in mind that if the Council chooses to
transfer some of the balance to a reserve fund such as the capital outlay reserve, the funds
can be reallocated at any time in the future based on project and program priorities at that
Action Requested:
The Council is asked to consider allocation of the 2003 General Fund balance in accordance
~vith the General Fund Balance policy in the Financial Management Plan.
S:\Council\l;ori\2004\Gcneral Fund Balancel .doc
BALANCE SHEET
Post Audit Report Page: 1
4/8/2004
CITY OF ELK RIVER 8:00 am
As of: 12/31/2003 Balances
Fund Type: l0 General fund
Fund: 101 - GENERAL FUND
Assets
Acct Class: 1000 Current Assets
I010 Cash
1012 Fair Value-Investments
1070 Taxes Receivable
1150 Accounts Receivable
1320 Due From Other Governments
1380 Interest Receivable
1550 Prepaid Expenses
Acct Class: 1000 Current Assets
Total Assets
Liabilities
Acct Class: 2000 Current Liabilities
2020 Accounts Payable
2040 Salaries Payable
2220 Deferred Revenue
Acct Class: 2000 Current Liabilities
Total Liabilities
Reserves/Balances
Acct Class: 2400 Fund Equity
2400 Fund Balance
2600 Change In Fund Balance
Acct Class: 2400 Fund Equity
Total Reserves/Balances
Total Liabilities & Balances
3,960,713.49
-11,550.28
198,612.59
3,512.50
40,530.83
14,962.81
1,267.68
4,208,049.62
4,208,049.62
160,583.82
215,980.72
99,436.00
476,000.54
476,000.54
3,190,588.45
541,460.63
3,732,049.08
3,732,049.08
4,208,049.62
EXCERPT FROM FINANCIAL MANAGEMENT PLAN
9.1
9.2
9.3
The balance in the General Fund is an essential part of the overall
financial management of the City. The General Fund balance
indicates the City's overall financial condition Fund balance
trends point to financial management practices. The Fund balance
is essential in financing operations. This balance is needed to
provide adequate cash flow during the first six months of the
year, to fund unexpected, unbudgeted expenditures, to provide a
temporary buffer against legislative actions that may reduce state
aid payments, to provide revenue base stabilization, and to
maintain or improve the City's bond rating.
The General Fund shall have an unreserved balance of not less
than 40 percent of the next year's budgeted expenditures. This
calculation is made at the end of each fiscal year. If the year-end
fund balance exceeds this threshold, the City Council will
consider the need to retain the excess and increase the minimum
fund balance before allocating the monies to other uses.
The unreserved balance in excess of the minimum in 9.2 shall be
allocated to other purposes at the discretion of the City Council.
The Council shall annually approve a resolution designating the
use of the surplus prior to finalizing the Comprehensive Annual
Financial Report (CAFR) for the fiscal year just ended. The
resolution shall include the following: (1) The amount of the
surplus and (2) The specific uses of the surplus.
General Fund Balance
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