Management Report and Recommendations 12/31/1993

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City of Lino Lakes, Minnesota Management Report, Page 13 The contingent employee benefit reserve is equal to an amount computed at December 31 for accrued vacation and sick leave. A summary of these reserves is as follows: Reserve/Designation Prepaid items Cash flow General contingency Contingent employee benefits Totals Reserve General Requirement Fund Per City Balance Policy Available Difference $88,984 1,051,000 502,867 286.589 $1,929,440 $88,984 1,051,000 502,867 113.808 $0 0 0 172.781 $1,756,659 $172,781 The City of Lino Lakes has improved the financial position of its General Fund over the past several years. We commend the City for these actions and encourage the City to continue to monitor this reserve balance. An adequate reserve structure will enable the City to retain its financial independence and integrity during adverse economic condition& A summary of the purposes and benefits of general fund reserve balances is as follows: Purpose of Reserves Benefits of Reserves Cash flow timing differences, • Favorable bond rating indicator. • Supplements revenues with investment earnings. - • Provides resources for minor projects or feasibility reports. • Avoids temporary overdrafts prior to major receipts. • City may study effects of revenue cuts before gradual program reductions. • Avoids overburdening of annual budgets for certain capital outlay. • Provides the City greater options to deal with unexpected events. Expenditures are incurred somewhat evenly throughout the year. Property taxes & State aids are not received until the second half of the year. A reserve of one-half of such revenues is therefore recommended. Intergovernmental revenue cutbacks. The City is vulnerable to legislative actions at both the Federal & State leveL Federal funding to local government has been substantially curtailed in recant years. Annual adjustment of Local Government Aid & HACA formulas is a constant threat Capital outlay replacement. Internal escrow for purchases which may exceed amounts available in any single budget cycle. This may also be accomplished through transfers to dedicated replacement funds. )✓mergency or unanticipated expenditures, Examples include natural disasters, law suits, comparable worth implementation and premature breakdown of viral equipment Special City Council Projects. Preliminary studies, interfund loans and minor projects are examples of reserve uses.