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City of Lake Elmo <br />February 17, 2006 <br />Page Ten <br />The purposes and benefits of a General fund balance are as follows: <br />Purposes and Benefits <br />• Expenditures are incurred somewhat evenly throughout the year. However, property tax and state aid revenues are not <br />received until the second half of the year. An adequate fund balance will provide the cash flow required to finance the <br />General fund expenditures. <br />The City is vulnerable to legislative actions at the State and Federal level. The State eliminated HACA aid with the 2001 <br />legislative session and since then imposed reductions of market value credit aid and local government aid for some cities. <br />Levy limits have also been implemented for municipalities in past legislative sessions. An adequate fund balance will <br />provide a temporary buffer against those aid adjustments and levy limits. <br />• Expenditures not anticipated at the time the annual budget was adopted may need immediate Council action. These <br />would include capital outlay replacement, lawsuits and other items. An adequate fund balance will provide the financing <br />needed for such expenditures. <br />A strong fund balance will assist the City in obtaining a more favorable bond rating. <br />A summary of the 2005 operations is as follows: <br />Revenues <br />Expenditures <br />Excess (deficiency) of revenues <br />over (under) expenditures <br />Other financing sources (uses) <br />Transfers out <br />Net change in fund balance <br />Fund balance, January 1, 2005 <br />Fund balance, December 31, 2005 <br />Final <br />Variance with <br />Final Budget - <br />Positive <br />Budget Actual (Negative) <br />$ 2,152,349 $ 2,218,359 $ 66,010 <br />2,226,487 2,139,949 86,538 <br />(74,138) 78,410 152,548 <br />(171,598) (206,598) (35,000) <br />$ (245,736) (128,188) $ 117,548 <br />2,373,923 <br />$ 2,245,735 <br />952.835.9090 • Fax 952.835.3261 <br />www.aemcpasxom <br />