HomeMy WebLinkAbout0265.092-
May 14, 1992
HONORABLE CIT, COUNCIL
Palo Alto, California
: .. i, if'!.ET ...,uuu
Attention: Finance Committee
Members of the Council~
ieport in Brief
Attached is information responding to questions asked at the May 12
Finance Committee hearing: on the Budqet OVl!rvieY and 1992-97
Capital ImproveEent Program (CIP). The questions asked were:
l~ Provide an explanation of the change frolt! a projec'ted deficit
{adjusted budget) of $1.2 million in 1991-92 to a surplus of
$145,000 in 1992-93.
2. Provide a list of ~e more significant service lev~l changes
vith associated dc]l~rs.
J. Provide a copy of the city survey on reserve levels and 3ny
additional pertinent information on reserve levels.
4. Attach estimated dollar amounts to the identified items -not
included R in the buQqet.
5. Departments will address in their operating budget :reviews how
they implemented. suggestions coming out of the Appropriata
Levels of Service study.
CIIR: 265:92
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6. Provide details en the $3,600 per workstation cost.
7. Provide information from th.e Policies and Procedures Manual to
511 committee members on st.aff-~ssigned exclusive US2 of City
ver.icles.
8. Provide an explanation of the cl"l.anges that .... ere made to the
Street Kaintenance C!P project {po 80 of the CIP).
Attached responses are numbered to corresponl"j 'to each of the
questlons~
A question was also raised during the revie .. af the Capital
Improvement program cancpr~i~g carryover of capital projects from
Y'ear to year. under the Palo Alto Municipal Code. (Chapter
2.2&.0;0), capital appropriations ·shall continue in full force and
effect until the purpose for ~hich each was made has been accom
plished or a~andaned. The purpose of any capital appropriation
shall be deemed abandoned if two years pass ~ithout any expenditure
from the appropriation~· This policy applies to any capital
appropriation, includir.g the Utilities.
In addition, attached are revised 1992-93 Budget DocUltioent pages
238-239 for the Library Division, with changes shaded.
Respectfully submittad,
~.. ,
0;;uL., ilu,~.~· ~ILyJHARRIS~
of ect~r of IF~.rance
Attachments
CMR:265:92 2
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QU~,sTION 1
GF~ERAL F~~D CHANGE BETWEEN 1991-92 &~D 1992-93
($000)
Net Operatinq Results, FY 1991-92 projected
Net Operatin9 Results l F¥ 1991-9~ proposed
Total change to be explained
Beyenue Growth fr~~~1-92 to 1991=21
Sales tax
Property tax.
Utility user tax
Transient occupancy tax
Real property transfer ,tax
Other taxes
Total qrowth in taxes
servicE fees and permits
other non-tax revenue
Total revenue qro~h
612
507
367
98
1,100"
--l.?
Expenditure Growth fro~ 1991-92 to 1992-93
salaries and Benefits
contract services, supplies ,
materials, qeneral expense,
rents l leases , equipment
(net of spending from prior-year
encumbrances and reappropriations)
Allocated charges and contingencies
Operating transfers to CIP
operating transfers to Debt Service
Total expenditure growth
2',703
( 425)
(475)
94
_M
1,347
2,709
3,333
TOTAL CHANGE '$1,341
, ,
-Increase effective June 3# 1992# so FY 1991-92 estimate is $lOOK
hiqher; FY 1992-93 estimate is $l,200K higher; and difference is
$1,100K.
p .... ' m_,..,. •.
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QUESTION 2
Provide a list of service level changes with associated dollars.
1.
2.
3.
4.
1.
2.
3.
New funding for ADA requirements
One-time funding of a cont~act
for the ~aintenance of parks
and City-owned off-street trees
Funding i~ the Operating Budget
for the Geographic Information
System ~orkstation and optical
i:aqinq system workstations and
software which will improve
customer service
Overtime funding for continued police
assistance to East Palo Alto
Decrease in Uuman Services Contracts
Decrease in library hours
Mitchell Park
College Terrace
Downtown
$11,500
5,80'J
8,700
Decrease in real buying pow~r
ror library collectio~s
purchases
Inc~ease library loan period from
3 to " weeks
'~------.~--,~----------
" ::}X~'L
-:.::~~,~}r~'~lf·
,-;.;., .
. -:~~
$20 /000
$50,000
$94,000
$65,0;:;0
($42,00::)
($26,000)
($62,000)
($39,000)
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QUESTWN 3
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City Of Calnarillo
601 Cnrmnz Dn·I'(' • PO, Sox .!48 • ('anla ri/lo, ('4 9.3011-024S
......... 01 ...... "1 q{ r;,,4/U'"
{~(JSJ .J/Ja·S32fi
April 29,-1992
Reserve Levels Survey participants:
Thank you very much for your participation in the Survey of cities
with 50,000 tc.' 100. 000 popul~ation: Reserve Levels~ We sent the
questionnaire to 81 cities and received: 55 re.sponse.s to it.
Enclosed are the survey results for your infonnatio£1. As you c·an
see by the results, even the majority of those cities that do not
have a reserve level policy think they should have one and think
the policy should specify a reserve level in the lOt to 15\: of
annual expenditures range.
The cities that have fOrllial written policies are Burbank,
Costa Mesa, Merced,. National City, Palmdale, Richmond( Upland,
Vista and Yorba Linda. We received a copy of each of their
policies and it is obvious that these cities put a lot of thought
and .effort into their polie:}'" development.
Even though I have enclosed a copy of the results as I had agreed
I would, please call me at (RDS) 3S8-5320 if you have any specific
questions.
Sincerely,
/7:. //, /' l>4t<, ~h'~ .,:;/':t"*'<-
Anita Bingham v
Director of Finance
AB:ke
enclosure
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CITY OF CAMARILLO
ScrRVEY OF CITIES 5Q~OOO TO 1Q~~OOO POPULATION
RESERVE LEVELS
£WVEY: ..... RESOLTS
Surveys issued -Bl
Surveys returned -55 (68tl
population (sta.te oept of J"in~ l/U) fP'~ratin.g_.~~.ud'qe-t , ~"l
50,000 -60,000 22 40.00\ 8.1 -10 2 3.6H
60,001 -70 ,000 12 21.82% 10.1 -20 16 29.09\
70,001 -ao,GOO 6 10.91t 20~1 -30 18 32.73\
&0,001 -90,000 9 16.35\ 3C.l -40 8 .14.S5l
90,001 -100,000 6 10.91% 40.1 -60 6 16.36\
CO.1 • 5 9.09%
Does your city have a policy specifyinq an un~esiqn&te~ reserve leve11
No
Yes, a formal, ~~itten policy
Yes, ir~formal
25
9
21
45.45%
16.36%
38.18%
coae.ents:
Soon to have a rormal l written policy.
In the process of setting one.
Council has designated 25\ of operating budget in a "working
capital reserve".
No policy. However, in practi.ce we designate reserves for
catastrophic events and economic contingencies. ($2 million)
The undesignated reBerve level policy is expressed as:
".--'-"
"I_ ,
A percentage of annual expenditures
A percentage of annual revenue
A flat dollar amount
other
N!A
19
3
'6
2
25
34.55%
5.45%
16.36\
3.64%
45.45\
Currently 'We have 16% of operating budget in reserve; ho'W€ver,
the stated go~l is 25%.
Short term goal is to ~aintain existing $2 million undesignated
reserve.
-The greater of $5 million or 33% of annual cp8rating
expenditures.
-An average of 2 months expenditures.
-HaV6 tried to ~-t up one fer ~ater fund.
-$6 million desi~.lated for economic uncertainty.
$5.7 million plus 8t.
-Minimum of $3.5 Irll.llicJn.
-'* $375,000, $2.5M .. $4M, S6M, ~12M. & $16M.
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The undesiqnate4 ~es~e lev~l policy applies to;
The general fund cnly
The g~neral fund and other funds
Other
N/"
comments:
-Includes general fund supported :funds.
2:3 47.27%
3 5.45%
2 3 .E4 %-
25 ~3.64\
General Liability Reserve Fund -not a formal policy, i.e.,
informally set at $6 million maximum at earliest possible date
and to J:.;.-e maint,'!ined at that level.
Did your city fin4 it necessary to cut baok services in response t~ the
r2'cession?
Yes, but no layoffs
Yes, including layoffs
t;o
C-o_ents:
28
15
12
-Potential of future layoffs unknown. (5)
50.91%
27.27-%:
21.82%
Yes, including layoffs (only through retirements or attrition).
No layoffs. Ho~ever, a hiring freeZe was impl€mented. (3}
-Layoffs are questionable for F"Y'92-93.
-No layoffs now, but will in FY92-93.
Pending FY92-93, hiring freeze and 5% cut in maintenance and
operation budgets.
In your opinion, sboul~ a City h~ve sUfficient reserves to meet economic
dovuturn8 an4 other catastrophic event8?
No
Other
Yes 5% -6% of annual e)(penditures
Ie%; of annual expenditt.:.rp.s
15% of antlual expenditures
20~ of annual expenditures
25% 50\ of annual expenditures
100% of ~nnual expp.nditures
Comments:
10% of annual expenditures minimum.
5% of annual expe~ditures (not always possible).
-Acceptable level of 3\ to 10%.
-Equal to 3 months eA~enditures.
-5% to 15% of annual expenditures.
2 3.64%
2 3.6H
4 7.27%
21 38.18%
10 18.1.8%
8 14.55.
7 12.73%
1 1. 82%
-20\ of annual expenditures or 20% of revenues, whichever provides
the greatest reserve amount.
-Sase level on cash flow and prior experiences for
downturns/erne::-gency needs.
-5\ to 15% dependent on city council desire to reduce or maintain
service OVer shoyt term {1-2 yrs}.
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The ~ernment Finance Officers ASSo •. dtion
Research Bulletin
Research & Analysis on Curren/Issu ..
November 1990
Unreserved Fund Balance
and Local Government
Finance
by [an J. Allan
Local govem.mr:nts in the UnttC'd Staldi are opt;rati.'g in an
iJx:reasingIy di.1'ficul1 b;.al environrnc:n! .... hich has been
made-won:c: bv '!he cffecl5 oran eccnomic slo-..'doWll. Of
pwdcuIar cM:.un 10 DUItly fmanu officers has been a
decre2se in I'CVtrlDeS fromecooomic.Ul'l seniitiveS<XJIt:es.,
which has led to budget .shor1fan.s and deficits. Com
pou!'dingproblems i.e local ~ue conectioo a..""t similar
~erns occurring II the sw= level which., in some.
instances., have resulted:id cLnbacks in SWt aid 10 Iocali-
0es.1
A DlUnbcr of action:; .:an be taXeIl tly toc.a.I gm'erements
sce.k:ini La im)Jl'O'Ie tbeir 'Char.ce!l of t.vo¢ng fln.lllCiaJ
diffioJ]ty during~..As of sluggish ()(' DCgaIive economic
gro;tttb.. Those a:tioos [n;;lude:
• The use or budgeWYfex.pe.'idiD.ltt controls,
S\lCh as t,,"te establishment of an allOirnet\t sys.
Ietn that would require the c:mfu! piarullr.g of
an departmental expenditures and budget of
fice awo~ of spendmg plans, Cl me limiting
of <Separtmental t..'\.per.ditl.lres to amool'll.s tess
than thai. bLldgeted (9j%, for e~ample).
'The usc: of amtizlgenl spending and tv; rules
that .... wld make levels of" spending and Lou
~ccr.tingt:nt ~ the arOO'.mtofre't
enues conec::kd dwing the fLSCal yta'.
The use of 00>er budgetary con~ inc lud1ng
teStrictioos on a:avel and budgetary traJ1sfers,
<kfem\l of purc~ of goods .. "'\d SU'I'~ces,
and • hiring freeze.
The use of unreserved fWld balaoce reso~
0" moaie:s:held ina rundestl.blisJ\ed specificaIly
for 'Cootingw.:.ics (such 2S" budget subiliza
tion or -rainy day" fum!).
The ftrSl two are ar.Lic.i~wry mechanlsl"ns which can be
Llsed to minimize ,,"Ie chances ofhudgf'l: shortfalls de'/elop-
ina auring • fi.s,ca] )lear. The laue," twQ ar.: options
aV8.Ilable u>.6nance offto::ers aftr.r a fl.M1lCwprobiem has
L
Oo"emmc:nt Finance P..esea..'1:h C'.en:er
1750 K S~CI. N.W., ~~a.shington, D.C. 20C06
(202) 4292750
deveJoped. "\Vh.!le: all ~t useful toofs in dimcult
flSCa! Um,e. ... thl!:. paper .."d.n focus on tfle u.seof \lrue~rved
fund balanu resources fo.-contingencies.l
SWii::.iel"lt levels of Wllw;se.:vcd fund balan~ (or m on:it's s.et
aside in 3 budgec stallili..z:nioD. fu'"ld} can ensu."e the cootin~
ued O1"de:rly opera'ion of government and provision of
.scr\""i~:\.1.(l residenc.s and the C(Illtlnue.d stabiJ i ty of the ~
structure. l..oc.aI govanmrl1ts that ha"'e built up suffidc1ll
levers of ~ fund balance: can 3\·oi.d or rrAuce
budget ("ulbacks .and LiX incn:a.ses if budget s.~fails
.se-... elop dwing .. fiscal "jr:ar. The mainter"1.aoce of fiscal
stability is.a particularly imponam factor co:uidered b}'
~~L r.u..ing agencies ill !'heir tvaTllltioo ~ftbe creditwQr
It>i:;ess of local govetnmel\l: debt., wi~ ins--...o.biUty pcten
riaDyleaQ:ingID8 credit OOIllTl~ a.."""Id i.ncreased rorro',A,<j ~g
costs.
The pwpose of Ihis paper is 11.0 discu.."-S the significance of
~ fund b.1Iar.ce to :kxal governments. and pro
vide guhlrux:e '" tWse rl1\3.."'\Ct offlCet"!i concerned aboul
the possih1e eITe.:tof iii .sluggish economy ({If O\he:r e~ It;ma]
infll!enCtS) 00 !heir govcrnment"s rLnaOCia] C{lnd]uoo.
The: ck"elupmenl of a polky &..at~::>t2.blishes lhe appropri
ale lev!;!1 of wtreSe:"Ved fund ba~ fOf a government, a
diffiCtl!t task. will also be di9":u.s.-.ed. Complicating tllis
L3..">Ue is Lhe eJ.is!=r.ce of ~ c()(1fusion over-what is mC'".aI1 ~
by !.he term ~fUfld ~.uance,· and !he fa-tl th.i.1 L"l]ere is no
n.&ionaD Y Wl,iJorm sto-'JldaM regard i:-.g lhe approprial::
:ieI'd of u."'U"eSelVOO f. .. mC: balance !hat Local gu ... emmen~
should rr.aimai n. Tnere is al so.a paw;:lty of l.i~ralure and
"thf'rinfDrmatiOl"lQn 111(-use cr ~ed fund balance or
other rif...anci.a! resources far cuntingencies, ""ith much of
it devottd to me C$l..abli~mt'"-llI of booge! ~:.ab.hzaLion or
"rainy day" funds aI the s:taLe }eve!.
Wh.iII is Fund B.abil1ce?
Prier to discussir,g the issues related to tf!.r. establis!u;lern
of an adtquattlevel of ~W f llnd baLano: fa-rconLin
gencies, it: is illlportanllD define whn i5 generally meant
by fund balance. FlIDd balance does. 001. refer 1.0 cash
balance. 001" is it the dlfferenc;.e be!ween revenues and
experdituTe.3. Rather. fund balanc-.e is the ~umulat.ive
difference of all rcvc.1 LIes and expendllures from the
govctumeru's cre.ou.ioo. 3 It can al.so be coos.idere<! 10 be the
dillttellCf hei.v.een fund.assets and fWld liabilities, and
can be Ir:Jl0 .... -n as fund equity.4
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:Fc.c ao::;ow:lting purposes.. ~tiOli is O(lU! m~
bc(wtclI resavedaDd unteSetvOO [Wid balance .erttd
f'W'14 bai.antt ~ists. of ~ »f fuM. bl.lan.,;. .. >31. a,ft.
ei1bet legally renri..,:I¢J 10 .a specific future use or are not
available for appro¢aIJoo or Upend.i.lllre. Legally reo
.stric~ portioas of fund baLance in\;tude "fund balanct-
~ (or~" and "fund ba1a.nce-:reservcd
forlkbt service. .. The portion($) of fund b.al.ance thai is not
.~le 10r a.ppropriatioo (I upendlt~ yt.p~nts. as
,ge,tg that are.tlQl cons:i~ "c:tpendabJe a~'ailil:>le rma:n
c.in,] rt.:sotl:fCe&." Reserved foro balan:;c: is: ofLer. fLl!1ha
btthn ISowr, imo ~'Itr.l! categoric:; 'based 00 the pwpose
of the mo:-Jes beTd. Exhibit 1 :::hvws rypic.aJ fund balance
a;x.:oontl.
Unre:serve(! f·,:nd balance iJ-eflen .Sl..IMivided inw deslg
~ and un~ portinns. The Camer refl{ct
tettta1.'ve managemem plans COl [ull.Jle finar.cial 1'eSOUl'C:"
use, web as the replacemenl of cquipmeru.:5 Other des
ig:na:ions include '"for ccntlngeTtcies" ani! '"for aJ?UPria
tion infutute ~ .. UodesigmlCd portion'S of ur>reserved
fund bili.nce ~~ ape:ndab[(: aVi.!lable f.nancial
resourres thai can be usOO lO meet cootingeacies: and
workU1g capital ~uitemerlU;.
The emphasis or \his paper ""ill ~ on lhe le'ld <'If 1lM!
served flllld barance 1ha! local govemme.'llS maintain in
their geneml fuM [orCOf'ltin~ies and which is available
far ~ ill 'the fJ'ent a govt:rnme1'l1 experiences fma..~.al
difficulty. The ~naa1 fund is singled o~n because it
contains lbc bulk of D"iOnies appropriated for general
g~ ~ MO-'it 8o~mmenlS seekjng to set
asiIie flDaDcial re.soorces far contingencies assign them to
t.~ gcr.e:al fur4s lW;;>:sc:rvod fund balance, eit.'ler m the
.~ ~ Jtt()l.mlCCln the "WlI'tSt:rVtd,
designated (or contingencies" acccunL~ Some tocaJ gO" .. -
emtne:uls crea.t.e,l sepa:rate fund for contingencies a: fwa.,
c-::'1 eme:rgencitS.,. such as a tll.rdgd. mbili.uncn 01 "r.lln)'
day~ fund. The~....ation of sucll .a Fwtd w'JI be dL<ocr.l..SSed
Jarer ill this papc:r,
-r;'by Is an UCJ"('SH""e.;I FlUId B.a1aD("t Nf'Ces.sary1
Two imponantgoo!s ofl:;al go"emmem.s are the mainl.c
~ of '-stable tax and te\lccue.Sb"UClure and the order!y
provis:ioo of ~ to mHJenl!. Suell st:abiUcy is neces
sar:y to mair.1aining or improving the jurisdicd<'ln's credit
standini. buz: can be Ihreateoed by uncertainty emanating
from a numberof areas; foremost iseconom ic uncerWr.ty.
£coDomk Uacertai.nl,.
Dc:termini:lg bow wen the loc!!l' 0( regional c:::ooomy .. ,ll
perform and h!; s:u~um impact 00 k:cal govemmem
(tnaneeg i& 0Ile at ~ 11.'lCXe. difficult taSks faci.rtg the
(lliaDCe-ofI"JCeC. Ch:II1ges in coooomic acti"it}' affe.:t ooth
the ~::nue s:tructure and government spending, wilh ~
effects varyinl from jurisdk:.ioo. to jurisdiction. 0( criti
cal impoctance to govemmenu: attempting to maintain
f1SC'.3l stabili:y is lhat the growth in revenuer. continue '-Cl
matcb or uoeed m~ growth in ellpendilllrr.s.
Research Bulletin No\'em ber 1990
L
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Exbll>ij 1
Typical Fuod Baluce AttQOGU
~ed for 1d\>'3.!1t'~ lC 00"Ier fwlds
rt;$C:V.ed fc.. debt ~
~ fnt mcumt.ances
.. re5CfVod for codo~o.ts
resc:rvod. t.;x fi~ asseu. be:~ f~ te$aJc
~ for iaveoz.orit:l.
~ ftx' oonclJlTml loans ~v~!e
~ !r« tre"paid items
~ fer disabilL'Y
~
~dtsi~{b'sp!Xi~pu.~)
un.~rved. amdesignatt.d
The fina..."'1CeS of govmunents Ihat <:re dependl!-f1l on ec~
nomkaIly sensitive revenues • .iucl1 as: genern! sales OJ
income tales. wiU be mort aff~ted by a downturn in L.'1e
economy !han gevemmel1l.5 thai are depcndeT!! til mon:
.stable Lu sources . .'!uc.'i as IDe re.al properly t.U. The
fOnIle; are more 1ik ely to bc:rlC:fi: from l)Je main lenance of
al'1 adequate :e~·ei of unreserved furxJ I;talaocc. Govern
~n15lhat are de:x:nde I1t 00 w. real property ta"t fl'UI)' also
be affected b;' an economic slowdo","n.. however. par
ticularly if lhe martet "Ia1ue of real e.s.ta~ an<l a:ss.e:ssed
val ~-decli..'l~. In addltion.ecooomic doW'll wrnsmayalso
c~triblJlt!: 10 U-c loss of majoc !a.lI:pa)·crs in some juris
ructioru:, severely depressing local re .-enue collections.
In some cases, govemml"nts MVC: ti llle control jJver ihe
{acl.OcS thai affeo..'1. expend1tl~. Tnis is pa."tiCl11a.'"fy true of
go'ftrnme..'ltS respooslbte foc emil1erner.t progn.-ns soc" as
public welfare services, expencblU:'cs ..,~ch qai1.e com
monIy increase dr.un.alicaily dW'ing-xooomic d(\WTliums.
L'l :aMition. ilie impact of in~aticn on 1lX.al go"'emmem
costs is of!er. hard ID !1ltlcipatc.
Other Forru.s 01 t:lIcutaiulJ'
"'''r,il(. the ~,('.alfrl of !he e.:..oomny ohen has \he rrrajO' e:fec\
Of! toca1 g0~'emmen. finances, o<her forms of uncertainty
must also be takt.o :nto ;:Qnsjcieration. SL)Ch as:
• t:nanlidpaLe4 chafl~ in the tv: and &pending
policies of fe&ra1 aP.~ Slate gO'lemm<"n lS.
Ol.ll'lges i... .. fede·ral and state tax. policies CaJ1
l'..ave an in'.pact <'In 10cal govertmenlS, which
must compete f.-;.r increasiogiy ~e w rev
enue$. S imilar!y, t;hange.s. in federalo.nd slate
spending poucies can impact roc..al govern·
,roent.!:, particularly if tcductioos in spending
force loca.! goverI'.,lT: e.nLS l£l increase l.heU: 0 .... 11
sperodJrlgw mah up fpr the loss.in Iedcr...l or
Sf.ate monies..
The irnposi;ioo of mandates hy fedeia! and
suuegDVerTlll'.em.s, wh icb Orlen ha .... e Ullcertain
eronom ic and fLIl.lnCiaJ impocto; on loc;rJ go.,,
ttnmwts..
tC
~.
I
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Coon. decis~ thai ~ LD ImCXpec:.ea 10':at
CApenditures. such &So courHnand.a~ irr..
provc.menlS to ~ facilities ox W=
invalidaLioo of a. ma~ior :evcn~ sowt:e !.lul
requires .. govemrnenl 10 rerum re ... er.i.lCl> aj.
ready co!Je..ctr4.
Lim:iUtioos on • govermnelU', ta.x.ing and
~nding powt:rS as the resull of U'!e passsgt of
y(..'tf;r lclereru!ums.
FL1lW\CiaJ dnpactS of lab.x agreet'i'iefIU, pa:r
ticWarf)'those:st::mming from Dir.dmg amara· -• Una.'ltici.pated ape:ldib:!!"eS resLJltillg fmm
natural dlSilSters.
Unforeseen increaxs m energy costs.
Unexpecled capital expenCiu..:re.-;:l1!SIJ1;:::l1g from
9r.'3ter main breaks. bridge collapses. f:lC
.. futraordinary employee t:lve"'lime r.osts,
Errors 1. I:,l:venIE and e::r.:ptnditl.a'l'.: cstimatioo
due to w di fflCul [y .in ide:nifying lhe lUrniT'.g
point in the business cycle.
Unexpected variations in a gOYeJT.menl' s ~
Dow that necessitate U:e use of shat-cerTn
borrowing if suffICient mor.ies are 1101: a,,·ai1·
able 10 coyer shorualls.
Allhoogb tb:n is more manel]\lering room in some bud·
gC'u !han 0Ihers.. p::iI'ticuIarly when it is possible 10 defer
purcha.<;es of g~ and services, all fll'lllnCeoCfa::e:s should
accep: the f3Ct that ur;certa.inty exist!: a.'"ld hecJge against it
througb the development and use Qof ~U3te k'o'e1s of
unresen;ed fund balance.
The.adequacy of .. jurisdiccoo's urueservcd fund balanu
wiD depend 10 a great e. ... tent 1lJX>D an aa;ura1e assessment
ortbe~r:ty it fa.::tt. Socii an asses.sme:nt will include
an eumination ofpast expe.-ieoces, inclllding an analysis
of casfI flows that looks at re"'enue co1lecuO('j and spwd
ingpattems. WitOOw such a revie'lli', a..,d wilhouladequa~
l't.\.OU."'CeS 10 dea.i w:ith fin:m:iaJ emerger.::ies, budget cut
bocks and !aX incr~scs duri.'i! :I fiscal year ma." becalM:
a real possihmty, and credit raLings may be thre.atmed.
Why Not Mailitailllq tJnreservtd Fund Bala[u:e?
Arguments for the e&ablishmelll and maintenance c(
adtquat.e levels of WU'l":Sel"oled famd tWar.ce ior contingen
cies reflect financial managemOlI imperatives. This per
spective o~n fInds itself WIder aaack from lalp8}""J'
.advocatesaDdproponen!sol ~ govemmentspell.:1ing
.. 00 may oppose. the establishment and maintenam;e af
ailY '(e)'el of unreserved fund ~ance, but wh.J.SC ,k",'s
cootnbuu: 00 11'.e df-.bateo"er theappropriau:: !ellel a."ld 1Jse£
('f unreserved fund: balance.
Taxpaya advocates argue \hal ... hen the gOllemmcru es
labhshes an unreserved fund baJa."'ICe it is attempting to
hoard monks IhaI i:J: does nol need. , re.s.ulLing U1 higher than
nocessary tax burdens. They lfgoe :hat monie.s shoold
remain in the laXpaycn' hands u:,LiI needed 10 pay for
suvk:esand thai if I:wptLtse:s.eilit,. tl,ey should be retlJfTl(".cj
to the taxpayc:r through tax CUi.'i and tax refunds. Re-
L
3
SOW'C('s should be o.:cumulated p!'\Kklltly, 'kept only f')r
spe.clfic purpose!> in f.rmally created f'tSUVt funds, with
~;uJc or no u.'ll"eSeJ"'o'ed fund betar.::!. This lIie-w' is com
w.-;nl)' expre'"...sed du..'; 1lS-periods of mp.d inc~ in th,e
ma.rk.et and as..~ value ofreaJ ~y.pdJ'tlCllwty U
property tax raltJ are not lowered a.1d prupenl' tlX bill,.
irc-rea.se signi rxantl J'.
S;endi!"lS ,arj,,0caLe:5 ;ugue loU ",,!len .. gtl\ltmmOlL ano
~ ru-.ancial ~~ &D unre,s.er.'ed fund baJance it is
boarding monies that would be bew:l-spent on some pobUc
goOO. Dr scr.ice. Wlule Otis vieW";oim could be ell~
at any time, il is ~ lW:ly during period .. of fLSCal
W'lCenai.'1ly, ~iaJl)' wbencillbacks iIl key programs are
tl=uened.
Establistling _ FUlld Bala['Jce PolkJ
AU go"cmmems should ha ..... e I pelie)' that accurately
re11ects thee rmancw objn;uvei. These objecti ..... es en-
compao.s 3 .,..ide ran5e of 3Ctiviti~.s. from rais.ing re .... enues
through specmc forms of taxation to ade.quate.ly accoont~
Ulg fer assets a.'1d labilities and investing public funds.
Sueh pll ic ics .should be L'l wr1!U'11 form. and subject 10
review b)' elected oirlc:ws on 3 regular ta'l.is...
As part {If Ujeii'-comprehensi ve financial poEcy. local
gove-rnmetll .. should have .. formal policy regardHiS the
!.eYd.o(~"SefVed flJIldbalance tha: they ""ish tocstablli;h
and maintaill fOi contingencies .and othcL pwposes. An
important reason fordcve-loping _,>uc.i a policy is [Opro~'ide
the taxpayen with an expi.anacion ofwby financia1 resources
ha~ b:x.tl set aside and the candicions Ilndet whi<:h such
~::s wiU be expended Th:is poLicy should cover all
fund NJan.:e accoun1.1.. 1bis papa, Elo .... ever. limits its
focus 10 !hose acOO\Jnts u.sed fOl" continga;.cies.
A g,J','ernment's fund balance polky ihauld address:
setting as i~ financiat resow-....es (or CQt1ti.,·
gencie..;
a.Oocating fir>...anci:ll resour;e,.,-ta u.rreservcd
fUlld balance. (or a budget sUbilu.;U.ioo furvf!:
utilizing unreie ..... ed fund bJJance resoun::e.-.;
and
d et.erm ming l1le appropriate ~.e o(ll1".reser~ro
fWld ~ (Of budget stabihzation fund).
$...*'ffiC. go~·=mmem.s have ioctllded a S!.alf:ment l1'.Eardi ng
the !e"e) of rmanci.a1 resources that they ,",,'iii set a.slde for
contingencies in the Swr_maI)' of Significam Accounting
Policie~ (SS.AJ') r:r the letter of transrn inal accompanying
1.~ gn\'emmrnCs Co..-nprehensl"e A.ll.c"lL::al FmandJ1 Re
port (CAfR). These policy statements along wilt. the
jw-isdicWo's compre.~ensive fmancia] pche)' shouid be
reviewed and updated 00 an MlrHlal basts 10 reneel current
economic and fmanci.il C;)r.ditioos.
Setting AMe Final"lCial ResollrCf'5 ror ContinieDcles
Local gO~'Ul;mer.1.S comm i lted 10 set!.lng aside: fl..,undaI
I"eSOU.'"Ces LO hedge again.'i! ~.conornic and o.ner farms of
W'",cenain.}, can c~ among the following options:
Research Bil.llerir, November 199{'1
,
j
, ,4
I -
?
"" fW>d bolInce of "" gcnual fond;
a fund ~Lisbed specilkally (or budget sa
bilizatioo or "'rainy day" pwro:ses; and
0Iha f..oos.
Gc-Dft'1l1 Faad. The ~ fund p70vide:s tht simpkst
and mos.tdirEcl'WaY olsettinS aside rU\8n(:ial ~ for
contingmdes. AIloc:atin& sucb resources 10 rbc genera!
(und', LWrtscrved (~nd balance rr.acs dear the
jurisdjction's poli.c)' reg8l'65ng tbt tQblish1l"Jt1l\ and
mainLcnMceof fi~..a! rt:s:)C!ft:eS f:::Kcor.dngencies. The:
roam sroNMl 'Wi.il1 t.h~ ~h is (hal. a.Uocau....'!lS to
unreserverlf-.md ~ Me readily i.<ientir .. bIc and ~
resent aM attractive pool of monies tbal: ta:Xp.3Yet wt .... ocatt.s
",ill eye for tax. cuts and that spc:~."lg OOYoc.a1eS will eye
foc spending inaeases. The major questions facing fi·
r.ance off"u:ers. aMpdag tb~ ~h. ",ill be:.
How carl monies not be tarm.ark:ed for some
thing and be unavailable'.': and
Under what circumsumces can t."Kse rT'.orlies
De 11tiliz.ed~
From an accounting perspective, i.: is preferable :hal fi
nancial resources set aside for contingencies be as,sig:yJ
10 unreserved lund balance or a fur..d establlslled .specifi
cally fQ[ thatpttr;lOSe. ResouItes alklca.ted 1.0 urueser.-ed
fund ba!ance sbookI be tithe! "'designatc.d f(J" eofuingen·
cies" or maintained as an "unre-SCr\led, undesignared~
balance.. That has 00( stopped some f~ officers from
assigning such ~ to some of the reserved fund
~ ac.counl.S. This tncti~ t'I'\a.) result in the de'ltl·
opmcm or mis1t.3di1i8 fmancial SWt:menLS.. bowtvet-.
BudJet StabiliJ.lltioD FIlDds. A number 0{ govemmenLS.
palticu1arly at "" ""Ie 1..-veI, ha '" establ ishe4 specW
funds for the purpose of guaroll\g a.gainst sud. negui':e
effects oraneconomic do omlWl! ~ revenue shortIallsand
increa.secl txpc:nailUr'tdemand, whid, can le<ld to opc:;uing
budgel ddjci~ At present, 35 stat~ have est.abltshed
bulget subili.z.aOOn {J' "rair.y day" f1,lnch 10 guard against
I.hese effects..' The availability or monics ,n soch a fur~
caI1 minimize the neec1 for tv: and spendi'lg c~.anges
dl.ll'i.rlg I,he fiscal year.
The protileratioa of OOdget subi1i1.aticn funds among
stale governments is prim.arily cl"ue 10 meit sensitivity 10
economic downtunu;. Some local govemmel11's are at~
sensitive to economic downturns. partictllarly thost: de
pa1deot 0Cl Seneral sa1es and IDcOO'le tax n::ven~s. ar.d
those with economically seT'.s.itiveexpendi mre.strucuJreS
Bud.gc-t suhilization funds are not without tbeiI problems,
.some of which indude:
!.act of suffICient (~ding;
disaetiooary deposlt mW>ods !lut )lave reo
sulted in liu1e oc no money going illlQ the
!WIds;and
withdrawal of monies (or reasons JJ!1reLaled to
bl1dgel'pcoblems.
Research Bulletif! November 1990 4
Otbtr Fuads. F~ offlCCrS mlt7e5ted In the irdiro;l
awoach to setting ~;d.;, fmancial r~ fer cofl!ir.
gencie5 have l'1ihzt'd. variety of funds, including: seLf-
1ns~ f~ and CWITI.5 reserve funds. n·" u~ofomer
funds r:.~ni.S 1m IeaM DbYious mt.lbod of Or:vetQPing
ade.:juate teveis of resources fer oontingenC'ie$. The other
funds ~h has somet.imesT"eS1.l1t.c.d in.abu.seso! plq.ler
accoonting standards lInd procedW"'!S, howev~.
It is impocw1ll.O note that !.here is noecooomic diiIe~~
betwocn the genaal f.l1ld. budget -!1.abili.z.aricc fl1.'l.d. and
~r funds altemaU'IIc,s. Total (.a:i'; position will be lhe
sa."ne, as wiLl the amoontavll1lahle foc use dlcing I bo.>dge1
crisis and the amount witltheld from C L1m:nt spending Oi"
fOf" ta:x rt:doc boo.. T1"..ett. at"! Co'.ha dilI~~ arnoog the
l1Lre<: apprcache.!. however. Budget staDili.z.atioo funds.
f,lI' eumpte. will alm~t always require the passage of
enabling ~isla.tion pior to lheircreation. while the o<:her
1>1.'0 ahemati ves would DOt. This is a major drawbad: w !he
use 01 bOOge[ stahiliUDOt1 funds.
"The oLherdrawbaci: to the oodget S1abiliLaIion ~h ~
th:-high ... ·I.s.ibilit)' offm! .. "cial res.DW'Ce5 set a:si\k in afand
established speciI5C81ly for cootil1g~.nde:s (also il problem
for ilit genua! f\U'od alllfoa.:\\), which rqn.ser.J...') a tt.mpt
[ng pooi of monies 10 boUI IaXpay!:C and ~ding ad"o
cates, a [act that undcrscor.es the ~.(I for a fomuJ fund
hiilance poJ.ic;y_ Finally. \he other funds .approa.ch is less
de!.ir..ble lhan the olhec IWO approaches b«:ause ir. is an
l.OOirect method of setLitlg aside financial re.sou."ttS for
cooW!gencles and, i!l. scmc c.ases, has rcsull¢d in abuses of
8('~ a.a;0Ul1.m i standards and procedures.
Allocatieg fw.aodal RrsourCti 10 'liD rt'St.r"cl FIUI d
Bab.llte
V,'llilc decisions n: Wed 10 ~ eslabIi.shment of an Wlle
s.eJ'\lt'..d. fund balaru;;e l".ave often been kft to the discredOIl
ofll1e fmance officer CM' el:rcutive, this ~ a decISion whicb
could benefl[ fr,)m greater fbrmality. A roectaru m\.Q,'\ b=.
esmbI;5hr.d furouglt. whi.;:b f""'Janda] ."eSOUTCe.S can be set
askk far c0!lUngerx:ie.s. This m~ha'lism must be dearly
identiflt.d and explained in the jurisdictioo's finar.daV
fund baIar.ce policy. Options a ... a.ilab!c k' Ioclil gOVerTl
memoS ~wdr.:
formulas lhat dc!ern"Jne, WitCsetyed fund baI
ance 1!mOUll15 (typical formulas include: 1-3
moo 111·~ operating expendil..l.lm';. 0( unrestr'\Ied
fund b,alar.u. as a proportion o.f annual opetat
ing ~pendilUreS, such ~ :5" percent);
reG,uin:r.lents thai a portion o[:.;oJ operating
surp!L.I.S be depos:iu",.d; nr.;, unreserved fund bal
ance; and
dedication of tev~\lCS from a spe:c.ifk~.
such as the rea1 property W.,lO the ¢ita.b1W!
men. or an adequaze level of unreserved fLmd
baJanc~.
TIle assignment of finan.cial res.oW"CC-S 1.0 unreserved fl..l!'.d
balance or a budget sl8.biltz.ation fund is most ohen done
d ~g Sood econom ic times foc ~ in b3d times.
" ULiUziDl Unr~ FlI.Dd Baiiffire Reso-.rcts
It is Unpona1U tlaz.critaia be /k.vclope.d IOguid¢ the use oi
flr.a.,dat resoo.rt:es set aside. roc continge.rdes, whether
those ~..;.es ~'IC b::en 3l.'Ioca1cd w unce..~ fund
balance or to a fund established spcctflCallY {or Lhal
purpo:se., or aitical im~ are twO q~"!;
• Under whaL ~ should lJ!U"(.S(tVro
fund balance rt.SOUroe.'! be utilized?; ani
• Woo should man the dccisioo regarding tbr:ir use'
In IeSpOnSe to the (lISt question, the prim.ary Tei50n ror the
use of unreserved fund ba!ance re...~....es is 10 aHe¥iale
unantkipaLC'.d 'Sho.i~t.enn budge:M)' p-oblerru. s'.):h as
revenue shonfaIls or booget cleflCits. These problWlS an:
orten uncovered dur.ng romine analysis of • govemmem's
cash !\ow pstttn'"s. R~~ \0 lilt. tWO majCll goals of
local go-.-c:mmenl fuwl,ciaJ mana&emtllt,. the teSOLl1't.'Z~
slu)uld be utilized w stabilize lhe tax stJ'\lCt1lrt: aIld ensure
[he orderly p-ovis ioo of .services 1Ore.~idenlS. It wOllid not
l:oe approprWe to use these resoor.::.es in an attempt to solve
loog-term rmancial JlfOblems, w1'lich should be dealt -.viLb
in oIhec ways.
Often, the deci~Ctl Orl whether to use financial resource~
set aside (Of" contingencies.is a political one, detum ined by
spel'lding need! or the desire to maintain tax stabiti ty.
Thesedecisi"':.S. ~ ~,.pi.caIl:; m.aJe hy lheex.eculi .... eo.r the
1egislativl:' body. I.e Ihh.case also, a m<ehanism must be
established far deretm ming when those rt'SOOfCe.s s.~ould
be used. A Dumber of me..thC'ds GTe 2\·aihble., including:
supplemenLal approprialion ofthc:resources LC
COO'eCt re .... enue shortfalls or btll!get deficilS;
tJteCulive olders requiring the trmlsIer of re·
.sourc:es 10 operating a.ccoorl 1.;;
Ionnula tiishursementof!he resources tD vari
ous operating accounts', and
auromatic a~rialbo or transfer in case (If
budgt't -IDoruafls ..
Pc~nniD:ni lbe ... ppropriate Siu O{Uul"eser"'ed Fu nd
Ba1:;;.~e
De&enniru'" ng the ;appropriate .size of u.'lJ""'....served r ~OO bar ..
:moe (,ptus [flonies Jet as.ide for oorllingendes in other
fun&.) is one of the C'101t iormiMle wks being local.
go~filla."'luofIicers andc:toc:ed offici.aJ.s .. C karl,)',
whallis ac adeqLJate level of unreseI'Ied fUlld ba1a~ for
one jUJis,1iction, gi .... en iL:i particuLar fLflaocw and eco
comic ch.ar.lc1eristlc.s. may liot be adeqtlo1~ for arl(;;.'1er. 111
lh.is section. the following wlil be d;SC~lS.,<;ed:
the COO"putatioo of an ~ed fund bar
ance ral.io;
L'-:: use ofu.1J'e:SO"'Ved f~ balance.as an ind!·
cat(I' of t-m.anc:iar coodition; anel
the 6eu:mination of tho:: appropr.a\e slu oi
unreserved funci balAnce:.
UI1I"tst'rved Fucd BabDl::t Ratio, Prior to discu~iT1g tht
issue of !he appropriate Slu: oC u~r.'ed r LUld balance,
L
5
"
LheCOrr.:CPl oftht lil ... \!s('.(lo'ed fund kl1'lnce ra:ic should t-e
introduco:t Thi$ ntio is imporUl1llx.c3'.Ue it is of~n ui.ed
as UTl0!3..Sure of a go'Ve:'M1t.flI·" fmancial he;oll!'1 .. The first
SU'p in me.cumpul.ation oft'r, is r<tu C is L'>e deu: rrrur.:w.oo of
.... haL fina,..:ial resoLU't:oes :ue aVllIlable to meet CQI'Iu ngell
cies. In SO"Klle jurisdiction:;. this amount WIll be equ.:.: i.e Ihe
m;oun;cs cooaa.:T'ied in the general fund' s unre.ser. ed fund
balance a.:::co.Jnt In otll~ JUI'Udi ctions.. re.sC'\.4-';es ron·
tal rk':d in C'>lher ptaccs, such as a bud!;e ~ sUlbiliZ2:";Or1 fund,
moo.tid be con.,j:jered {or ir:;::lusion_
lrl .:omputiflg the unre 5el"!'ed fund balance rAt.!o it is
impona!1l'Le.\clude l."le "!ega 11y re.srncted ponions of fund
ba!an::e (that rtSen'oo for wc~rno,~ncest and for debt
servke) and thcrsc re:;;ou,.·· .. ::es fl!:SCt"Ied !or Olher purposes.
it.is f10l critical ~ resources ~de;<;igna:ed~ fo:-!iptC.iflC
plL--pt'!SeS ir. Ul"'r-.~ed fu,"ld ba1anu be excluded frOO'.lh:S
c.alculation.as the 6esignatior.s refiectorJy Lentalive plans
for ',.l:SC, althOllgn it may be appropri:a.1.e to do so.
The amOlJIll of resources avai13ble for wnLir.zem; ies is
tilen compared ""'ith. annual op:rating t::;; yenditure.s (for the
general fund in ihis.~).1 The resulunt ratio (Ola variant
Lioeroof) is oflC:l1 used by tr,e creW L rating agt11Cies iL"1d
other Jf\alyS-lS in measrl.o-ing fma.'1cial conc1itiCofl.
l'nresen'ed Fuod Bala cee as an [ndk,ltcr orFinaru;; iaf
ConditKm. Beuuse of the irnpor...ance 0( unre,s.e .... ed f:.md
ba!anc:e to lIle credit rating ag-e.rxies· ~VaJU2tiOI'! Df i'llocal
governrnenfs C1t'I1ItwCrrui~nes.s, 1I is ap)1rop-iate IOdJSCl15~
their views reg<srding Lbe subjec.1. The rating agencies'
primary concern is that govemmen tS have an adequale
levtl of fifWlCi;;J ~s.ource.<; !() en~~ Lhe timdy paymen!
of principal and mt.erest on Iheir ol!tsWldirJg de!bL
Of parlicu.1::.: imponanu: to the credJl raJ..ing agencies an:
the ~z.e of' f· ;i.<.i i..d1ance" (res.oW'ces 3"aiLable for cantin
ge:x:ies) and the t't:;nd Ul the suO: of fund baI:mce.~ A fund
halallU that dec.-e.as« in s;lze from year 10 year is some·
titl' es $I"..:=n itS a p~lem and .3.-' an indic.alDf of fls.:al
we..ak.nes.s. A >..'1',;,,Il fund balance rwn~e.r 5 p:!rce.;lt of
aIlllu.a.! Qpel7l:ing e);~nditurT':s) could al,<.r:; be lookoo upon
negatively if l1le gevemmem h.a.s e:x.pel'ienced financial
d Jficul tie;) ill Lhe p.a& due to e:~:lernal foctDrs, !:uc.h as a
s!ump in the ecorlOmy. A fur.d balance tkficit would be
looted uron very negatively since it clearly indicale.s that
a .£(lv-:.;nm~l h..;,.~ had prior (jlfij cullY balancing its bl1dget
lIDd is \(l a weUer,ed, pooitiol\ lO 6eal w'iili futtlT'C financial
problems..
In the fonowing paragraphs. the ,,·iew!> oru-.e major crtdil
rating ag".1icies reganimg the ~l1bi'...ct ""ill be pre~n:ed.
Allbough Moodj"s In.'estors Service. Sl.amiald &. P"'vlJf'S
Cmporawem., and Fitc II. Investors Sen';ee lake similar
3pproaches to the issue of adequ.aLe fu.nd balance, 1l1e.-e are
di[ier-Jlc~s among them.
Mo~">d:y' r: The Moody's analy5.l. is in'J'!"""'-5led in measuri.1l g
{QI'It.roi, or .he abilliY of tbe. gCllemmenl i.e c.all for.h ar,.j
manage finane ~l rl' SI."Jtm:'.es so that deb! obl igatiol1s-can be
met in full .:md c,n time. The availMilily o( adeq:Jilte
flIlancial rr:..oUfC'-e)'. ti"w.t CiI1l be used 10 adill(:;;s unrQre~n
coolingenc ies adds to ~n i 5.;Uct'S COrltrot
Research Bulletill !'~ovember 1990
.. (~j .
. ':,. :.0'<::.-
"". .,e+
~:.: ...... t~:·:::· :~,~.~ .... :'(;~
,:~..r.'."'-
-
'"" AIt.'YJl.lgh s "fWl.d ~. Lh't' ~ua1~ 5 per>X-rll o[ tud·
geteG txpendiUJ(U; is deemr.d prud:=nt by !he Mood.}"!
arWy~ m;: appropriate tevtt Cof f'"md OOlance -.".:ill "'M)
(IOO1 j LLri~cLimlo lC jurisd.i::-:Jui\. The k:'>el of fund b3:lance
I.o"lat an a.u1ys:t would lil.e to see is dirf.cljy relal.ed to to'>e
ltkeliOOOO cl the gtwe."1lment belng forced to can upon
the..'lt It-'!oOUfCes. A fLOnd ba!ance below 5 pen;er.: or
boogeted' e:tpel1dHures may not lidversel y afTecL 2l'1 f ~ec' 5
c=-ed.it position if the lower amount is jusillied by a long~
tum trend o! annual opentiag budge, Sltrp!tJ.Se~. Ott ~
vUfCt hand,. I la!ie: f ~Jld ba.Iance me)' be nt'Ges-W"y in
jurisdictions wW, econom~ly scfuitive I'e'i¢fl"e,s and
eJ;j.'tr.diUlre!>lhaI. art.OO!.~1"j r~lO
S.!P's:. s.&:P's considers:.an adequ.alC 'Ic:~'el of "fW'ld bal·
~ .. to be: .a -.redi.r stre..'1gth becau~ .!.he kvc! of fond
b.a.lance measu"""",; Lie flexibililY of an iswr.r to .'7'ICd.
esscnLial services during Ira!lSoitlooary periods. Whik
S&.P'~ con.~ 5 peteent (If aIlnua.l. (gemlmg u.pexdi
tuns La be an a;je.quaLe levcI of fu~ balancc ror ~
8(.>vernmtnLS, it m<!y not he for l}IJ".~~s. Of p.;uticul.at
iro~l"'..ance te '-"e. S&'P a,"\alyst l5 the main\ena.""lce .:,f a
stab!e level af fund b.aJance o .... er r.i1l1e; .udden, 'h.ary
dec~ in f:JfId ba]8lCe levels at"(" general I), locked \lpon
ll11fa ... 'c.rably.
The S!iP ana.l ..... ~l wes into acCO\Jntsevera] variables when
e\-a!wung flmd ba!4nce si.lI.",: the c:as.h flo ..... of an issuer
(;~~, w. collection practices v. speI1ding pattern 5); O(f';er
,-eserve;s OC contil1gency fui"ld..; a~'81lable 10 !lleet unforc·
steflu.penseS;:!nO 1.he'Pt1.ilo~}' of gQ>lemmer.t~ffic ials
and the community toward Luge govemmenl revenlJe
SUtPluses..; t
Filc.k. FilCh, whic.h re.:.ef1~Y b=g.il1 10 rate general obfiga
tioo bond issues. offered the fonewing stat.e!Th:!r.t describ
ing its. approach to the issu~ Qf ad~ua.1£. ~{ur,d ba!anc.e-:
An unreserved fund balance .,rovides a govern
ment wtth a .... allable rtSOlltf-eJ in Lhe t:vent of
rw.fcresoeable OCCl.!rreoces. b,,"d'geo .... ari3OCe.<l or
rot cas.. .. flow Parp.:lses;, Moiit analysts look 1O.Ii
fu'!<d bala.'lccof aWJt 5: p"'~nlofrcver.~s as a
prudent l!:\·el to allQW for II rea.o;onabk C!egree of
error in. budget: forecasting Of ol11er QO;l.Il"l1::nr:es
within \he. Oe.fmillon of lIo casual event. Fi~h
r.etie .. ·oCS this is a reasonable henchman: recog.
nizing lMt [he appropriate level may vary 3(:
cording 10 J"ICed.s. for inslAtlCe, a. munidp<Jilj
lhal relies on a large percentage of iLS wes
wHeeled l.1It. in the fi seal )''!4I miiy Deed highe,
balances for cash flow requi rement.~. Also. a
locality which possesses a cycIical economic
base may be n>ore SI.!:>eepl ible '10 w idel budget
swt.'lgs requiring alargerand more hql.l.:d "OOtl!1
geney. CU!'I"crse1y, aJ\e.tllltr .... ith il mr.}ree.lle'l
Oow ofrecei,pLS thr-.lllg:'oot the ye<&r. ""!lith ila.~
good capabil ities in accu.r;Ul: budge!: forec.a.~ng
and monilOring, may not need as large';! r.a\.an;:.e.
Filch 1'1a~ less emphasis on actua.l fLlnd bal
JlnCe level, bul r.Wler S.treSSC5 lorJgeI leml finan·
c ial balance alid rnanagem etlL tn lh:; long 1\Ul,
Research Bullelin November 1990 6
t1".e fWldamcm..rJ (';CMOm ie, C4lill1 and rm.mci.al
nlM3ien~! rBCLOrSITtOIl: heavlly influence.credit
q.uahty ard ratir.gs...l2.
Siu of l:nresento-d Fund 8ahmce. TraditionaJi)', two
meLhodsha"ebe.en1lSell by Ii rlOUIce,,(fJCers indelennining
the apptopriaLe sUe of I.mre~<'",.d fund balance.
a!1oc.:ui:!1l fmarw::ia! resoo.n;es equal tc 8 pet
centage of aJ"ln LIal ~ting tl!pendi trn:1;
ill'OCating f\.fW\(..ial !'e:SOulttS -equal\£, 11 ca:
tair. numb.::" of fnQf1lhs' opetatirlS expendl
l"'"
A comrnoil s:tal\d..a;.d' of measuring unre~ned fw.d bala.~
(cr resources available lor conLlngendes) holds thaI an
/I...'"tI.OLlru equ:l11C 5 perc.I'.t\t of a...-mual ~~g exper.w·
ture:s is i>u.fnciem 10 gWl1'"d ag.ai.'Lq the effectsuf most ~s
of uncertainly. To SCffIC" extent. this ~dard has beel!
S\.l~ b)' ~ c~t nr.tiag a.gencies.
Othe:r $,:)vernmeTl\S l.l1.l1in a diffen:n1 method of measur
ing tlv! adeq uacy of r~SO'lITCS avaihbTe for conting~l\Cjes.
This met.tJoc! invoh'es lhe establishment of an unre.servea
fl.l.r.d bala.'lte equa1 to II -certain number of momhs of
opera.ung ex:pc.nditl..iIe.';, \Vhile the equivalenl or one
montll's upt"r.J.Ung exrendiwres (equal to 8.3 ~rcem of
.arm uaI opcr ... Ling expendilures) appears j,O be wide1y used,
two to tPlee. months or more is not uncomrnon,l:>
in bo\h case-s. dlt: mt,1hod utilized 'Stiould be )ncorpa-ated
in the ju:i~icLiOl1'S firulJ'\CW policy. ;ain, this ""iI! help
[0 ~Ios.ue li'~an concerned are aw;ve of why Wre50UICeS
~ve been ~~ A.~0e.
It shotlld be: made cltar that while these: .qandard~ are in use
by a. large numbei o:;:.f i<:.Nernmems. I.f\ey W'lll not be
appropriate for ,In. One of the reas.ons why then: Eo 110
nationany unifocm rule for use in measuring the amount or
ruoo.'"'ttS avaibotol'e {'"Ii tootingtncies ~s that ali g~ ... ttr:
mcnlS 3rt diIfert:J'11 in ~rms of theL-ecor.o."11ic a.,d nrlan
dal ,hol.!"'.ao:Leristjc.~. Tn:>te.ad of a rigidly defined .sundard
l..'la, ruc:ta\.eswt.alk'ieloffmancial re..",")urcC$l~al goveJl"j·
men IS ~'1c'l<ld mainLain for conti nge-nd~, it is rnoreap~
priz.!e ror those g-ovemmalts to m.ah: thd.r own oocisions
aroll! .... ·helll.::r to set .aside more Of less res<JW"CCS based Oil
their asse~ment of the u~rt.ain.Y that.l.he~' [lICe.
Is. there a level of UI\I~r.'t.d f\ln~ balancelhat isconsid·
trod!O b;::.exce&>.i O'c? An inform.aJ: standard thai: is l.ltili!ed
b)' some govern,menlS hold! ULaI ... ., unreserved fund bal
ance in e).tCSS of 10pettent of annual operatirlg ex:pendi·
lLJIes Y10uId beexa.""r1inedl.4refutly 14 ThegerJelal feeling
IS that if an unreser'oled fund halance i:;; in exce~ of JO
percent.. lhere should he some notion as to what the
re:>;0<..ltCe.s l/o'iU be usedfoc. F(X' gOl/ernffie,nlS. rac i. ... i a. high
degree of l.incenainty. ho"""('vCt, all unres('.{\IOO fund bal·
aoce in excess. of 10 percenl or annu..al cx:.rendiLures rna)'
00\ be highr.oough,
W1lal. le .... el of unreserv~ fund balaoc.e slloulJ it local
governmem main:.ain? The level est.tbliilled s."lould be
direcll)' It \at..'..tJ to !he delP"'...eof Llncertz.inly which h faces;.
!he greater the u-ocenainty. Ihc-grea~ 11le r manclal rc·
.~. ,<
~~, • "' .~
j'~ .,.
-
')
SOW"Ce! DOCC::UarJ. e...cn 80V~ mUS1 ~valualt: ~
degree of risk thai. it L1ce::i on 81 .Bllnual basis ar.d male a
~.ision ~ lO !he Ievrl of fUlll.hC'w resources that il wi..shes
if) maintaill (orcootingcn.;ies. ThiSeY;llua.ricxl '," itJ mliOIVe
an anaIyr..s 'll'past uperiellCCl., irlciuding.a.'1 eJ:.amination
ofo:ash ~ and~, esUnUlteofthedegree ofuocenainly
current.Jy!1ICCd tJy U1c aovemment in question.
As .. genen] ru~. ioc.1! govt:m.."Ih!ll.ts shouic:! maintai r; en
aJTIC'UlU. equal ~ 5 per...c:nL of aMu.t;J operati"g expeDd.i
tlRs. This shoul-d satisfy some of the c-redi t raLing agtll
<;:ic..,' roncerru regardlr.g the adequacy of ~es avail
able for oontingendes.l :5 Those gO'''f'emme!lls facing
greater nncertairuy should mai!'oUin .. !'Jtgl:ter '\e~'cl of
ur.rese.r..ed fund balance. Tbo&e govemrr,ents Uw main
wn an unreserved fund balance a.bGV't 10 pett01t af
annual operating e;'l:pendi tures sbould be abie to provide
~.a:: justiIica:ion formaim~ni!'1g lhat leveL 'J'lW; in
lUrn ,.",jll suisCy the conc:ems of those anal'yru ~'ho con
sideJ.an unre.ser"\.o't>d fu."1d ~ it> e.lc¢ssof 1 Dperce:Jt to
be: Imwarr-J;%llbi
Lile many other things m gO~'tmment finance, the dell!r
rnin.atiaJ: of the .!IppI'Op".a~ kvcl of unreserved fond
~ dw: shoolcl be mainlalned for-contingencies is &J1
art., 00( a sc ience. Past experience can be used as a guide,
with patticulat a.tte.r.tiCf1_ paid to !he foUowing:
EovernmelllS with more volatHe revenlle
muc:tures (such as those dependent on general
sales tax re ... o:nue:s) ,",'ill need a la.--ger unre.
st.r\Ied ramd balance than olhers to provide tile
same stabilization T'e.'i:l.llt;
go"'Crnments deperufent 00 one Ol two major
n:venl.le sources ma,)' need a la.-gcr unreservorj
fund baI.ance if those revenues are sensitive ID
the errecl~ 0( the bWiiness C)cle;
thosegcvemmemswi th gre.o:.t.etability to ~Jcr
~~ can opooue wilh a sn..allc:r l.;are
served fund balance than ,go"'emme'.L' which
do not ~.ave Stlch ability; 16
larger go~'err.me'H". which typicaJly possess
broader and deepec tv. bases, rna)' be able ID
function wilh a smaller I.lnreser;ed fund b.al
ance lhan other governme.nts;
governments witll coruisteru oper-<Hing SUl"
pluses may oot need a l.arg:e unn::se.r.'OO fWlC
ba:.anc.e;
gQ~mments with occa.siona] or frequent 0p
erating derlCi~ will need a lar~ llnresct'\lOO
fund balance;
governments wiLlI une ..... e:n cash llowli can
minimize me n.eed rO! s."JocHeITil oorrowing
by maintaining a larger Unre.5C!"o'ed fund bal
ance;
govemmenls wiw econornkally sensitive e,,~
penditure structures {j.(",., those govemmenlS
'i<o'ilil large public wdrarer~spon:!iibillLit:s} v.irJ
t'lecd a larger unreser.'ed fund balance
L
7
Com:l~
Finance offlCer.;concemed aOOullhepossiHe dT«tsnf 3.01
ecooom~ downturn (or olt,C" external inl1 Lle"'lces) on their
governmem's fL"Ul1(:i.al conrui1on sflould consider tht o1e+
.. cloprnem 0( a <;ufficiCtl t !.evel of u.:treserved fUJ11j balanc.t
mo., can he used for c.ootingrncies, ~UmdenL k'.e'ls of
unre.served fund bal.aocc can hetp to ensure the t"onti nne6
orderly openuioo of go~-.::rtlmCll.and pro~' islor" of St7\Iius
to residents and l.t~continued SLlbili l)' of the ta.:x strUCture.
The rrWt'lt.el'..al1Ce of S'.x:11 s~bihty ~ a particularly im?Ol"~
la .... 1 faclOt" .:ons.idered by &.e rating agecrl(;ies in tho-;ir
e .. -alll.3tion of the aediJwonh~nc55 of local gcvemmem
dehr.. wlU: tnstoibll it), poiC:ntiaIly k.aJlng to 3 cMI.jown
gradt &.'1d increased borro""ing COSL~
Determ ining what kve~ of W".re-.served fu.nd h.:!!artct-1.0
maintain ~.a diffie-uh task. Because l-.f .1ifferenc.es:in tl\(:
ecOfiW'lX: and fm.aocial characteristics of kx.aJ go~+
mcm.s:!rol.i."Jd the COWl try, no naUoMlly Uf1 i form standard
eJ.igl.s l'tganfing &.e level of unreserved fund balarn;e thai.
local go~'emme.'ll'5 w.iU1d maintain. 1nstt"...<Id. each govern
mem ml.l.<;;t 1.<;Sl'"SS tIlt degree 0( uncenairJ.y ..... hlch it faces
ard make a deci.5;oo a.!: \0 the k:vo:l 0[ f""l3.OCial re10UlUS
it l'.'ishes to mai nSZir. for conting:r.dts.
lu ecvnomk Ci:mdltions waner., a gTO',I,'lng nambe.r of
local governmen LS will flOd them..<.elve.s in an increasingly
diff!culL rt."\aTlC ial posi tiorL Those governme:1iS tl-.a! have
m:-ognize1 the euJnom;~ unu:rtainl)' faci f1.g their gO"o'em
meniS,and that have had the fores ight 1('1 :Seye lop adequatt:
fmancial res.ources in re~n~ In this un.:erUi.. .. ty. will be
much beue! aNt' to deal v.i'';'. !"le com~u.er.ce..~ of a
!>lo .... ·ing ecor"om)' tharo lh~ who hdve 1l0t.
EndtIQles
1. DurinI; FYW, 20 ~till.e·.l.Ip from g inFY!I~-""~e roonpdkd
10 re;:!u~ Ih~ siz: Dr Ihtir r.dopted budget!; M J,l"~ill Hw.'ud,
W:uhir.~tcn. DC: Nllucm.aJ A.s;(<ciluar. of Sw~ BlJdg:1 Offic
~r5. SeplZmbc: 1m
Go:nerltJ do:-l, ... iar.ciol'l m w 5l;i1:.t IJId ioc:aJ Ls..-1Il posltion, II.!;
meil.l~ed 01'1 1 I'IIC'101ll u.come..,.1 P" .... ilX""t$ ~OWl:..> (t-.1PA,l
b:ui:!:, hIS bt:m r-oLe1 sJ~ 19~. 11-is ar:wrdirl.s to Dilvid F.
SUQi"oI1l in 'SLue &lXl lAcal GoVC'T\ll1ClI Fuca! PClSition ill
19S9,~ S~ -iC1,/Jr'trJ. BILf~r, Wuhiniton. DC: U.S, BIi
rta., oJ Economic Ar,al),.is. Jmucy !~I.
2. Thflfe ue • number of oti1er pU1~e; f.,... wlaer, unte3crVed
fund ~8Iloe. rescun:.e:; <.:L'"l be deJ.ign,aied, :ndudir,,: capil&!
improvcment~, lell ·ir~lJI"al1\: c and ~'I)t .servi.::. :\Im: .... ill be
said aOOLI~ ~ des [gn Iliaru. -in <he llCJI;t iGCtinl'l
F=d baJ-.nce is alS(] diro:-<:Lly Ufe-:I.ed by olilcT fll'o&nClr,'
S;C-llrCo:S L"j U'le~ (e iI! ,:~&1ir11! :raruIers) . .fo'i. ",'c:illl5 by rr:~iI\l.il
equ,ty turu:fe1".l F,::s add iuon.a,J inIom'lalic;n on fu.'ld b.al1ll1(;~se~
Go7>'r,~nt.r:l! A.c'·"IUIo'~g .... .wdio"'g and FiAwv:(ai R~p(1niJ..g.
Q,;cIgO, [L GoVemmtnl FlllUlCe O;-flQ:TS A.I:&OCiation, Jl.mC
1988.
4, It ~liculd bt: ooLeJ lilal uru~cn'rd fL>l«! b-lllTlCe mol}' P.Ot
~,pr~,;.e" "~i!k a:;sets" of tile fund (0:-.II" ("un or .. pzrljcuilU"
Research Bulh:!in ~ovember 1990
I '-/~ '. .~ . . ',.",:;-
J
'I
I
·1 I
I
I
I
I
I
L-
'"' .irwacmmt i;nJtnuncnI). ~C"fthu. klml:-~o"~.lSml;l
6nd their IICUU !D~ed f\I"Id t-..l.cP",~ limit:rl, III
\c..ut in \hi. Ihon ~
S. n.e ~Id\ ~'liru\:C ~{ CotllieS P\.'bl><:. ,..·:"""O~W'lu·
(AlCPA) IWdlL.ld~.,.Wde.. "'iJi1s~S/.all oTJd l.oc.:Jl
Ga-~ UNis, pt)'o'ida t..'l.A1 "s:-JC.iJ des~;:etior.s ~uld be
suppoN:d by -.kftciti~l':}I1,ar'd 1nd "W"17'cd ~ lhr; 1tI"t:mmm\'s
chief~~e offioer.;:;( Ihc.kgUjllUl"l!.· hs.'would.ao'ix ooled,
'ta.>"'~<IIf. tMt ~ IBOO.l24<JrJJtGov~ Acr;oun!&lJ
S:mdard.i »oard'11'J90 Codif<a#~ c!~>kU,,"ow.;u.c md F~ RqK"'1:'" S~d.J 'l.I.1C5., ~~h ploW c.
izu.cr.t Ire cu'b.Fct 1C clu;n;e and!N)' fIe'o'ef be ICSally w'..h..mn:d
IX nsW( ill e..~t:.::la. "[)b;i,v.a1a3 ponions of fund~.e
~t rlJl..arci.a! ~ u tila.hlc III finf:l,cc ~ .. pd"ldi.tlJlCE
o:h.=r than ~ II::I"..tatiYdy pllUlMd 40
6. It ~ ~rUtnl. Leo flCtc dw: .) llilf~td n..""ld: bal&nCt
~ ·do~ for calliJ....gmciea;· c.:n be made '''1I1.ble
be s.d!-innIr'#I¢e ~ -.1lh:ough tr.q ........ l.Ild ))(II. be re-
I~".D lfw-..e; II:nd. b)&o"'crn.."lJenIS m.tyh ..... ·esomt; fluiDil-
i:y in Il"cuf.::mng TCSQune.s bc:l ..... .-..en some o{I."oe f~~ f..lfld
bl:hl'~ a::eounu Vld '.he \If'..l~~ fuM. 'bt.l~ Ili!NtJil.\,.
.l1.'wllgh ~~ a.:;s:ignod 'to 1~~1.Y re:5tficted fGet"o'II! ac
~.-:s c.ocldnrn: be ~ ill tl'W: manntJ" (kJal mtrictions Oil
transfcn.btiWet't'lI6Cr'o't ~uYuy IrQm.iWt 1C.s<:u.c:). TnJ..s
ficxibility /11.1)' Unpt'ove the tbillty of IO"~u LO re.s;r>M' 10
• rlSCa!aUi£.Ilthoog,hMOvement$uf thls ~""'Y COI'dtitl.l'lt: In
abuse-ar thII fund btJ:moe~: acem:nt sttucrure
7. FCl':moreirlformll1i<:w.PnStlLe BooSt.! Subili:t.JtiO'l'l FWldssu::
C~ E:.kl. ·P!.~i AlI.u,J. ",,",u, Boo"el Su.bUiu:r..i.on FW'.ds,~
TN Fiscill lAlP, Denva, CO: N~a1 ConIe!"Ctl('.e (If Sll.r~
u:till~ MarchiAprJ i99(}, and, .BJgt'-tilq A,m;d FiKa;
U~, 'WcN.rottor\. DC: l'l.ui.ma! A5~\.t.llm'i cf S\~
B~t ~ and N..uona! Gc"'emors An.xiation's C~t~
for Pojjcy R~h, J~ 1985.
8. ln~ this .. tio. infmm&l,.~fIQm the samcflSUlyur
is 00t.lned bttm the lalotSl. .vllll"ble C0171p\"'l!heruive "roual
F~ Repm: (CAFR.).
9. h slto'Mbe na~:hn!.he r&ting Itelli:i~ WfIV:ti."ne.t '\&Sot t."e
lam ~fund ~ClCE~ in dUcu.u;':w.s rdued to ~ iss:.!<'! of II.
,o"emmeni rrWr-.Wnin.£ lIC!eq~~ r~.al re.so~ rar wn.m·
g~ Th:i& is irnp«:is.e l~lll.&ie ~ not rJl of fund
~ .... ould be: IVLiI.wk fUJ OJI"Itlnaemid IJ'od thiJ. hu Jed II)
eonfl.Irioa em :he part 01 .!lnanoe 'Officztl.. eloea--:ted eoffkillh. Itld
olt-.a: iJ\laU1eC.~. ~ ofllUft. sl.;"lI1d .s:sume. t.h~
when.lhenti.na q;.enciec ~:his ~ IiULl Llu:y mllybe reJeni'-l,
to the kYeJ ofrlllC'".clt!r~ur-a.1 thaL-I.so"cnmenthtd: Ilvllllllb!e
i'orronU:r~, b'ilhUJtttion.. tn: ~ ·fuOOblJllntt:~ ... ill b(;
used, but only IOlI"oidmiuepre5C1lti:n& i!1.e credit fOIWr.j oIgenc1es'
porit:ionJ :'Ca:xdiT., d-.u wbjed..
10. Sunur..ciud from Mood]S Oft MlI.1'oicipals: An IrIJ,.odw:I;Oif,
1.0 bsWtg Debt, New YO1\. NY: Moody', hw~to~ Se[>'I!;.C...
1989; a\d.. '"Mood)"1 btiJl.J~: Frequt:nll!/ N.i.edQ-..les
lions..· New Yo:X, NY: Mood,l/s Inv<'!StmJ SCflo'ic::, 1990.
II, SumJl\&%'iud from S4t.YJ M .... -.ici;:aJ. FiNv&cr C,.jurio., N~'",
York.. NY: SandIn:!.t Poor's CurporlUion. 1989, Addi.~n.u
infc:tm.Uian. OIl!. SA.Y, wal)'JU WU (it:li~ntd iJ1 • lrleptor.e
Resear~h Bulle:in Noyember 1990
CUilvenltion "",'iiJ". Hym4n G~J5r.1r .. M.uur&ina ~.oI' ()[
S&r' .. Mwlic-ip.&i Dep.rCne7U..
12. C'OF.e~~ lIfii.h Rich .. --d RL:pt...ael. 5~jC1 Vic~ rr<':Ji
den! ~r Fiu*. b\ .... u.tor1 SQ'\ji.co:., lro;. (Oc-:o~ I), l'H-ii.
13. From. ct1'l. .... ~~ ... "'ilh Paul.E (;1" ... ~OT of .':'IC
Flr..c!'ICW Masull~ Pror-m at ~ UflivC0"5il) or v.&.-gia.,
It1'Id .. veterr.n ",".ieWCl' oj COlT'.p'cll':n..Ei; c Anr.ual FU'I&'''';'.aI
Repo7U (CAFRs),
lA. TItt:Cil}'ofMin .... upclis. fO'!"c%.ample, hu i:l1lCid.-..;l. c;utiLWiD
rw: m ainuin .an ll7t1'i!:SC:n'od fund bdl!:lU :tl UCCSJ; oJ 1 a peKCnt
of annual e.tpenditwq. so &$ to Il,·old o.1bS· ~ w;;p.aya's
mrmey. See.: M.:1t. Welmare, ~Mir..ne.poli.s ~tl";t:,' Lwc:»i'
men~ f'..md:. t..ook..i.ng ... \I~ R~ of Rc.o.rm. Of', P:-aj~~ fund.eC,.·
CQVU~ FVUN.".t! p.e>J~. 0clDbd" In9. Aud.ilot~ in UlC
Of"Il«: o( l!!e Sw.c Comp .. """tIIle:r O"f Ntw Y()';k wJso laC It.e IC
~U',t figuu.s U\. in!CTmIl.' sUndU'd fO'l"lk\nminin~ ~='Si .... e
~"ea of \/lVl!$C:('ltd f.md ba:~ Llthou&h j( is 001 I hard .n.1
f&J.trul~ See.: Fi."UJI'oC~iM~& .. .8ID'JG~f~LxaJGow.OI.
","".f, A~, NY: Oaice III \ht, 5l..1.l.-.: COll'Ipr.rollC', Jul)' i 'fSS.
~ S Whlle si2.e U of )Om ~ iJr...F~"'W\Ce, -.he T1lti.." ~erdu
;:nW:a:ri concern WI U bot-the tr~ in 11',(" s lzeof fund balilOKe., ..... i,))
$.hArp dro~ b si.z.e p"5"ltbTy ~dlc..1ing flSC&llo.r~eH.
1 5, ~ PIIyme:t1l or pnr.:;ipoIl aM WCTeSL on a gO\lcmF.1Clr'S
oul$~~.deb[obli&ILlJoT\.S., rJf ~5C, rowdootbedeIerud. At
:he ~ tiJr".e, ddenlll or P-I)T'1erl.ts for olh::-: items., SlJct\ c
5<,.'1.LI.Vi.a1l.~ l"G;llircd pmsbr. evr,ITJ;""buLioru, TI1..1)' crezLe Of cor..
lTl1t>J~ to l'll'la·lL':1"m fin w;:if.] pt"Obkms Give;1 d--is, iI is lmJXIf+
\.a:r.11h.u gC"eI"T'.n\oCl1.\$ u:~"Il.ir.e Ow. T.n\ir\C~ of r!SC1.l st:l"llle
gie$ mn;:l"mgl1le dderr&1 of p\ll'das~/c.~~Lrurc:; "ery c .... ':'_
ruil J ,
Ian J_ Allan is a Marlager at. ..m, GFO,A':S Go\lemmenl
Finance-Resean:b CeI1ta where he is re$pOnslbk: (ot
research and COI".sulting projec.15 in tbe area!: Jl-L:l.J; aM
fe\'enue analysis, em'1ronme.I'IW fir..aoc~ and flIW\cial
manage~nt.
ThI" OolJ:tl-tOf would iil::e to thank. Lhe following m.1J ... iduaIs
f.x ~ilciI comment" and sugge.!: Lions reg.ardin,g this paper:
Pacl Glick. (lJnl~eni.ty ufGeorgia), !)a\lj,j Ee.rn (GASB),
Dtane HoL'TIes (GFOA), BemardJump (Syrac:.:.sc: Unive!".
.sily). M.iuric,c Harris: (Syracu..or.e Vru .... 'etSity). and Gary
Nof'$lJ'C1l1 (City of St PiJJl. Minnesota), The author is
indebte.d to John Petersen. Seni::lr Director or the GFRC,
foc-his sUWOr1 of Lhisproj.ect; to Stephen Gau!hi.:::r. Dim;:·
ta" of the GFOA '5 TedmKal Services CCrth"J', r .... .11 lochni·
'-<ll review of this p:ape.r. lC B~ Wdss. edimf Qf
Gove"ur~II!F ;'1tJ!f.ceR~ .'i~. foreditoriaI .assistance.; and,
Rebecca Rw:oum, Direclor of GFOA's Pl.lbli;::aliom, Cen
ter, for production a..s.\isl.a.r~.e.
This paper grew 001 or a study or m ~njc ipal finance is..sLies
prepared by ~ GF~C for !he lI,l.ary!SI'Id Commi:.>.siul\ or,
S~ Ta;ti-:Slll1d Tax. S[J1lClure in early 1990, The opinio!l.S
exprc..<;.'>t".d 1Il It are those of the 8ulhor • .and do no< nee essar
llJ' r-el1ect those of 'Jle Gt."emmenl Finance Offiu::n
Association
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QUESTION 4,
ITEMS NOT INCLUDED IN PROPOSFO FY1992-94 Bt~ET
o AB702 PDS Robat.. Latest estimat@: fro'\:: FERS: $6.1 million
total, spread over t-.o years. F'Y1991-92: $2 . .2 million;
P¥1992-93: $3.9 millioi"l.. General Fur:.d only: $1~8 millicn this
year, and $3 . .2 m.illion in FY1992·-9J.
o Coaprehenaive Plan t1pd..te. Esti:oated cost of $1.0 :million
total from F¥1992 -93 through FY1994-Sl5. This. is depend'!nt
upon council review of the Plan, scheduled for June 15. The
General Fund would pay 75 percent~ and the Enterprise Funds 25
percent.
o .. ira Station ReloC4.tion. One-time set--up costs of $.1. 9
million net (in constant 1992 dollars). from F'l1993-94 to
FY19~4-Sl5. But see "Continuing Expenditure Reductions" belo~.
$0.5 to $0.6 million will be: saved annually, beginning in
FY1995-96; grows to $0.7 to $0.8 million annually by 2000-01
(all aollesrs in constar,t 1992 d..,llars) ~
o water ae~l ... tion Project (Bnterpriee 7und.). Estimated cost
of $8 to $30 million, depending on the extent of the distribu
tion system~ Recommended to he funded by bonds.
o Golf" Cours •• enovation.
funded by revenue bonds.
$6-8 million. Recom:oended to be
o Utility Billinq system IEnterprise Fua4a) 4 Esti~ated cost of
$0.7 to $0.8 million~
o Pull compliance with ADA. Cost unkno~n.
o Kanag .. ent Audit. Cost unknown; depends on scope~
o Bztension o~ PEaS tun4inq year.
General Fund: $560,000 annually.
Total: $640,000 annually~
o .ealth-care cOllt reductions, from a switch from the self
insured city health pla:;') to the PERS-administered health
plans. Total: approximately $0.5 million in FY1992-9J, and a
potenti~lly larger amount annually in FY1992-93, depending on
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the amount of PERS-administered health plan rate increases and
negotiated City contribution rates.
o PERS payroll contribution rat... Because of the continuing
~talemate in sacramento Qver vho has legal authority to set
annual PERS payroll cantribution rates, the city has not yet
rec~ived its FY1992-9J r4tes, 60 staff is assu~ing a continua
tion of the F'i1.Sl91-92 rates. Given the press).lre on the state.
budget, any change is likely to reduce expenditures~
Q!Jler state Budqst Impact;;
Further spending mandates or revenue losses resul tinq from the
state buuget crisis. (The City's remaining $0.1 million of annual
cigarette tax revenue is already assumed to be taken away 35 of
July 1, 1992.)
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QUESTION 5
The following is a typical configuration !lind cost_ for an HP -PC
COlilpute_r sYDtem :iJurchased by the City:
Typical per-sonal computer system c1,.l.rrently consists of:
2.
3.
386i25 central prcx:ess.ing unit (CPU) and
keyboard
1'-color monitor
DOS 5.0 (operating software)
Miscellaneous hardware and soft~are
required for irlter.face with mainframe
(HP3000), printers, and other peripherals
Typical cost of hasic system
with tax, the approximate cost is
ot.~er typical options:
2.
3.
Word processing software (WP5.1)
L-otlas 123
Power surge protector
Prices and configurations vary.
71 _ i
$2,.00
515
75
$3,3BO
$3,633
$245
250
40
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QUESTION 7
--FaLl AND PROCED~~ES 4-1
Page 1'"0 of 12
REVISED: Sept~~ber 1931
ATTACHMENT 1.
POsITIONS AOTHORlZED FOR EXCLUSIVE VSE VEHICLES
As of september 20, 1991
P'l'ILITIBS DE_FARTME~
Manager, Electric Operations
supervisor, Electr ic SystC1T'lsjlM:tering-pr-:::lt.ective 5yste.~s
Supervisor, Ele,:;tric systeos/Overhead
Supe.rvisor ~ Ele~t.r ic Syste!ns-/ Substat.ior-.
s'..lpervisor I Electric systemsjUndegrc."w.nd
APPROVED:
Manager, Utilities 09e:ratio~s, ,..'-G .... ~
POLICE DEPARTMEllI
Assistant Palice chief
Police Captair. (2)
IIRE DEPARTMENT
Fire Chief
Assistant fire Chief
Fire Marshal
chief Officer -SLJ..C
PUELIC )IOB..:p;S DEPART.'o!ENT
Deputy Directo~. Fublic Works operaticr:s
Hanager ..... ~ater Quality Cor;trol Pl~ nt
Su.pervisor / Faci li ties ~a.'lag>:r:',ent
Supervisor, Build.ing Services
Director
Chief Building Official
Director of Parks & GGl t Course:
Super irrtendent of Parks
--DATE:
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QUESTION 8
In a staff report to be considered by Council on Monday, May 18,
staff recommends that Council approve a priority ranking of
transportation projects that may be eligibl~ for SO percent federal
funding. At this time, staff believes it is prudent to assume that
the City's gas tax funds will not qvalify as pa~t of any 20 percent
match the City :rna}' need to provide for these projects. Therefore,
in order to e~rmark sufficient matchinq funds for projects which
may be approved, sta:'f recom..mends that current and future traffic
impact tees be set aside.
The 1992-97 Capital Improvement Program Budget originally proposed
to use current traffic impact fee revenue on the Major Intersection
Improvements proj ect for the Alma/Charleston construction. The
revision proposed in CMR:249:92, dated May 7, 1992, would replace
$300,000 of traffic impact fees with gas tax revenue as the only
funding source for the Alma/Charlestou Intersection Improvement
project in 1992-93. This __ ill free up traffic im~act fees for
matchinq .federal funding, if required. The street Maintenance
project l also funded within the fixed gas tax allocation, is
correspondingly reduced by $300, 000 in 1992-93 to offset this
revision ..
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COMMUNfI'Y SEIlVICES DEPARTMF.NT
~DI."100
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.upport of ti......" .......... whi<b .. _1<01 '" """h S40,OOO ror 1990.92.
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""''' • Iowa" pribrU:y compteMd as at $ww. 1991.
\ 4. g~ that 9991 {ttH'.Ifl JO"Io) 0( ,II JWW -t'Mh RlMeria18/l1Jd 91"" {bUpt 901L) ~I(.U new ....... mfter'iak 1M!'t'W! mt14:ie lit"ail.hIe lu ehe public: within twol
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Set WiIIdank lot t«hniaJ proc:eMinc oI.libtary m.klri&18 ud bq(j" re-e'fahWloo of ~in« dat,,1}ase l'ICM'icilJ.
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COMMIJNfI'V Sl!RVlCES DEPARTMENT
Ubl'aI'}'Di.w...
~ OIUE(,TIVES"
J. ContinUl! to IMiM: .... rn ... of' the Pall} A.liu Lihrwy if) fundntisine/don.tion pMlnunI. Jterort .nm&IIUy to Cily on in't'ol"6mmt anli nwults.
Z. Explo~ optiOI1!'l for mli efferti .. tIIlttnwlti't'l!fI au JW\lvidrlibrary ltI'Tice for bomf't Of omce. in ordrt to improft ~ to library Mni~ IUId 1'fIdUl'# .u .....
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