Management Report and Recommendations 12/31/1989

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City of Lino Lakes, Minnesota Management Report, Page 21 The State has made significant attempts to improve the "equitable distribution" of State aids to cities over the past two years. The success of the actions to date is questionable. The proposal to "raid" reserve balances of cities would be a clear message that the objective of the State is not equity among cities. The objective would be to control the local decision making process as it relates to financial matters. This would result in an erosion of the independence and effectiveness of city government. As important, such actions could eventually effect the bond ratings of all Minnesota cities. The City's minimum cash flow reserve requirement is measurable. For the City of Lino Lakes, the minimum required surplus is $846,000 computed as follows: 1990 Budgeted Levy (Includes Homestead Credit) $1,529,821 1990 Anticipated Local Government Aid 163,103 Total $1,692,924 Minimum Required Cash -Flow Reserve $846,462 The City had $1,030,053 of fund balance at December 31, 1989. This represents 121% of the above targeted cash flow required reserve. There is, therefore, approximately $183,000 available for other reserve requirements of the City. As discussed throughout this report, sound fiscal management requires General Fund reserve balances. The City of Lino Lakes currently does not have a policy which defines or targets levels of reserve balances to be maintained in the City's General Fund. Commonly, such policies will address the minimum cash flow reserve requirement, an emergency or contingency reserve requirement, a reserve for compensated absences and other reserves which may be unique to the City of Lino Lakes. A reserve policy can be established in such a manner as to allow for annual adjustment. Adjustment is needed as circumstances change. Therefore, certain reserves can be stated as a percent of financial indicators. One example would be the minimum cash flow reserve would equal 50% of property taxes and local government aid. As the level of property taxes and local government aid fluctuates, the reserve balance would automatically adjust. Emergency expenditures and contingencies may also be stated as a percent of the operating budget. We are available to assist the City in reviewing reserve requirements and reserve policies.