Management Report and Recommendations 12/31/1990

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City of Lino Lakes, Minnesota Management Report, Page 24 The State continues to discuss potential targeting of aid reductions to cities based on "excess" General Fund reserves. We recommend that the City strongly oppose this method of targeting aid reductions to cities for the following reasons: 1. The proposed targeting would penalize those cities which do practice sound fiscal management. 2. The proposed targeting would encourage less responsible fiscal management. This would result in financial crisis for individual cities and ultimately affect the bond ratings of all Minnesota cities including the City of Lino Lakes. 3. The targeting program would be virtually impossible to administer on a fair and equitable basis because financial management practices and fund structures are not consistent or easily comparable among cities. What may appear to be a low reserve balance of a city's General Fund may be an adequate reserve balance for such city. 4. Many cities have established reserve policies and made significant fiscal management decisions based on the established/targeted reserve policy. The effectiveness of such planning and fiscal management would be severely hampered (if not destroyed) by reserve balance "raiding" by the State. 5. The State is possibly seeking to pass its financial crisis on to local government. This would be a temporary solution to apparently poor fiscal management at the State level. 6. The potentially lost reserve balance could diminish the city's bond rating and potentially deplete a city's reserve balance pledged to secure debt service requirements. We recommend that the City monitor the progress of the potential State actions and take defensive measures to protect the City from further financial crisis including the following: • Communicate to legislators the potentially devastating financial results of depleting City reserve balances. • Review formal reserve policies and modify levels of reported reserves if deemed appropriate. • Consider funding (through transfer) target functions in separate funds to further emphasize the intended use of General Fund reserves.