04-12-2006 Council Agenda - Laserfiche WebLink

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aberration above the 42.5 %. The City's current policy regarding reserves is attached along with the actual calculation used during the budget process. In order to affect a transfer to reduce reserve levels and to maintain the levels in the range suggested by the State Auditor, we recommend the following: Retire the current General Fund Surplus Transfer Policy (Exhibit C). ❖ Adopt a new policy regarding City reserves which would incorporate the following language: a. In order to provide adequate reserves for future expenditures, the City's General Fund balance and Special Revenue Fund balances should be at no time greater than 50% of the prior year's current expenditures. Current expenditures are defined as current expenditures in the General Fund, Special Revenue Funds, and Capital Projects Funds. b. Upon the receipt of the annual audit, the Finance Director will compute the transfer necessary to bring the prior year's fund balances in line with a 42.5% reserve ratio. The fund providing the transfer will be the General Fund. c. The Parks and Recreation Special Fund, Economic Development Fund, Cable Fund, and Gambling Fund are excluded from the requirement to transfer funds because these funds were established for specific needs, therefore their fund balances should remain for those purposes. d. The reserve funds in excess of the 42.5% will be transferred and maintained in the General Capital Improvement Fund. These funds will only be available for future transfer back to the General Fund or for levy adjustments which would have the same effect. Conclusion: If the above policy is adopted, $781,576 would be transferred from the General Fund to the General Capital Improvement Funds. Additionally, the 2007 Budget would take into consideration the loss of interest earnings in the General Fund and would adjust the General Fund level and the General Capital Improvement Fund levy to compensate for this shift in dollars (i.e. reduce General Capital Improvement Fund levy by the estimated increase in interest earnings and increase the General Fund levy by the same estimate to account for the "loss" of interest earnings with the net effect to the levy and each budget being zero).