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City of Lino Lakes <br />Management Report, Page 17 <br />The prior Management Report to the City indicated that fund balance reserves in the <br />City's General Fund are required for sound financial management of the City. A summary <br />of reasons for maintaining General Fund reserves are as follows: <br />1. Cash flow requirements. The City receives two major funding sources <br />after one -half of the calendar year has elapsed. Property taxes are <br />primarily received in July and December. Major State aids (local <br />government aid and homestead credits) are received in six monthly <br />installments starting in July. The City does not have the ability to <br />only incur expenditures in the second half of the calendar year. Most <br />expenditures are incurred evenly throughout the year on salaries and <br />other operating expenditures. The timing of major revenue does not <br />therefore meet the needs of the City to fund expenditures from January <br />through June. <br />2. Emergency and /or unanticipated expenditures. The diverse nature of a <br />City's operations are such that unforeseen events require financial <br />flexibility. Natural disasters, lawsuits, unexpected capital outlay <br />requirements and preliminary funding for vital improvements must be <br />financed on a current and timely basis. General Fund reserves allow <br />the City to meet such costs and preserve the well being of its tax- <br />payers. <br />3. Reduction in shared. intergovernmental aids. At the present time, the <br />State is involved in a budget crisis and the Federal government is <br />involved in a tax reduction program. Although the effects of these <br />situations are constantly changing, it appears likely that past trends <br />of increasing aids to cities (by both State and Federal governments) <br />will not continue. It appears likely that this trend will be reversed <br />with a larger portion of the cost of City government being financed by <br />revenue raised locally rather than at the State or Federal levels. <br />The City's ability to convert to greater self reliance will be <br />enhanced through the maintenance of adequate General Fund reserves. <br />The amount of General Fund reserve required to meet emergency and /or unanticipated <br />expenditures is not readily quantifiable. Rather, the level of this requirement must be II <br />established by the City based on the history of the City and the philosophy of <br />"adequate" reserve coverage. <br />1 <br />1 <br />1 <br />1 <br />1 <br />1 <br />1 <br />1 <br />1 <br />1 <br />1 <br />1 <br />1 <br />The reserve requirement to deal with unforeseen intergovernmental revenue reductions II <br />is also difficult to quantify. State and Federal legislation dealing with shared aids <br />is somewhat unpredictable. The City must strive to remain current on the effects of <br />1 <br />1 <br />1 <br />