Management Report and Recommendations 12/31/1991

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City of Lino Lakes, Minnesota Management Report, Page 18 A table 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 recent years. Annual adjustment of Local Government Aid & HACA formulas is a constant threat. Capital outlay replacement. Internal escrow for purchases which may exceed amotmts 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 vital equipment. Special City Council Projects. Preliminary studies, interfund loans and minor projects are examples of reserve uses. The amount of General Fund reserve required to meet emergency and/or unanticipated expenditures is not readily quantifiable. Rather, the level of this requirement must be established by the City based on the history of the City and the philosophy of "adequate" reserve coverage. The reserve requirement to deal with unforeseen intergovernmental revenue reductions is also difficult to quantify. State and Federal legislation dealing with shared aids is somewhat unpredictable. The City must strive to remain current on the effects of changing legislation and budget such aids accordingly. A reserve balance in the City's General Fund will mitigate the adverse effects of aid reductions which are received after expenditure budget commitments are made. The City of Lino Lakes maintains reserve balances in other funds of the City for portions of the reserve components.