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HomeMy WebLinkAbout1882!'~-;/~' /'} RESOLUTION NO. / () {I pi, A RESOLUTION of the city council of the city of Kent, Washington, repealing Resolution 1859 and adopting financial, accounting, and budgetary policies intended to provide short and long-term guidance to city staff for the purpose of achieving financial stability and achieving goals established in the City Council's Strategic Plan. RECITALS A. As the council developed its strategic plan, it also created a new set of financial, accounting and budgetary policies that are intended to offer short and long-term guidance to city staff as the city moves toward accomplishing the goals established in the strategic plan. The council adopted these financial policies by resolution on June 5, 2012. B. Since implementing these policies, the council has determined that certain policies, such as the policy pertaining to the city's "Strategic Opportunities Fund," need clarification. Further, in order to be best prepared for future economic downturns, the policies have been amended to add an aspirational goal of building a solid financial reserve for all city funds. C. Just as the strategic plan reflects goals and a vision the city strives to achieve, these amended policies reflect the financial goals and vision for the city. Accordingly, the council implements these policies today with the 1 Financial Policies Resolution understanding that not all goals can be achieved immediately, but rather will be achieved over time. THE CITY COUNCIL OF THE CITY OF KENT, WASHINGTON, DOES HEREBY RESOLVE AS FOLLOWS: RESOLUTION SECTION 1. -Recitals. The foregoing recitals are incorporated by this reference. SECTION 2. -Repealer. Resolution No. 1859, adopted on June 5, 2012, is repealed in its entirety. SECTION 3. -Policies Adopted. The city of Kent Financial Policies attached as Exhibit A are adopted. SECTION 4. -Severabilitv. If any one or more section, subsection, or sentence of this resolution is held to be unconstitutional or invalid, that decision shall not affect the validity of the remaining portion of this resolution and that remaining portion shall maintain its full force and effect. SECTION S. -Effective Date. This resolution shall take effect and be in force immediately upon its passage. PASSED at a regular open pyblic meeting by the city council of the city of Kent, Washington, this ""f/it; day of ,liFbo:,anA , 2014. J 2 Financial Policies Resolution ATTEST: ARTHUR "PAT" F<tTZPATRICK, ACTING-CITY ATTORNEY I hereby certify that this is a true and correct copy of Resolution No. passed by the city council of the city of Kent, Washington, the ' 2014. P:\Civii\Resolution\Financial Policies 2014.docx 3 Financial Policies Resolution FINANCIAL POLICIES FINANCIAL STABILITY POLICIES General Fund Reserves -The target for the General Fund Contingency Reserve is 10% of the General Fund budgeted expenditures or an amount that will maintain sufficient cash flow, whichever is greater. The policy is designed to provide a fiscal cushion and meet seasonal cash flow shortfalls. If the General fund reserve goes below 10%, based on the ending fund balance on December 31 of each year, the City shall take steps to rebuild the reserve within the next fiscal year. Strategic Opportunities Fund-The City shall annually transfer any amount in excess of the 10% General Fund Contingency Reserve in the General Fund to this fund, after first funding the Contingency for Unanticipated Costs. This fund will act as if it is a permanent fund except that it may be used to take advantage of investment opportunities that may arise. For the purposes of this section, "investment opportunities" includes expenditures intended to increase city revenues or decrease operating or capital costs. To the extent the balance in this fund is not from a recurring revenue source, it should only be utilized for a non-operating purpose or one lime expenditure. In addition, any appropriation from this fund must first be approved by the City Council. In the event any of this fund is used in an economic downturn to stabilize city finances, such appropriation shall be repaid to the fund annually over the next three years. Capital Reserve Fund -The City shall annually budget a minimum of $250,000 into a reserve for the general capital needs of the City. Such fund may be used for unanticipated capital needs typically resulting from a natural disaster. This fund is designated to act as a stabilization fund for general capital and may, with a specific appropriation by City Council, be used for investment in revenue producing capital projects or capital projects that reduce recurring operational expenditures. This fund shall be enumerated in the budget and accrue each year. Contingency for Unanticipated Costs -The City will annually budget no less than $500,000 in the General fund for unanticipated costs. This amount, if unused, will be transferred in to a project account until the amount reaches a maximum of $1 ,500,000. If the fund or any portion of it is used, the City shall restore the balance to its $1,500,000 within three years. Maintenance and Operational Planning -Maintenance of current assets shall take priority over new capital projects whenever possible. The City Council shall ensure that there are stable sources of revenue to fund ongoing maintenance of capital assets. Before any new capital asset is approved, staff shall present an estimate of the life cycle and maintenance cost. Such costs shall be included in the budgets for the following years. The City Council shall not approve of new capital projects unless there is funding for the ongoing maintenance of the asset. The City shall maintain an inventory of all City assets and costs of maintenance of those assets. Total Governmental Funds Reserves -As an aspirational goal, the City shall maintain a total governmental fund balance of twice the greatest volatility in year over year changes in total revenues or $30 million, whichever is greater. DEBT POLICIES Projects Funded by Bonds-The use of long-term debt shall be minimized. The City should issue debt only for major capital projects. Debt should only be authorized for projects where the life of the asset constructed or acquired exceeds the life of the debt. Debt Service-To ensure that the City always meets all of their debt obligations, payments on outstanding debt shall be the highest priority before payment for other capital expenditures. fnterfund Borrowing -The City will use interfund borrowing where such borrowing is cost effective to both the borrowing and the lending fund, and the funds will not be needed by the loaning fund during the term of the loan. Such borrowing shall implement Council directed policy in a simplified manner, such as borrowing associated with interim financing for local improvement district projects. A repayment plan should be approved along with the loan. The Mayor may approve loans for a term of one year. The Council must approve loans with terms longer than one year. Exhibit A OPERATING BUDGET POLICIES City Target Issues-The City Council will update its strategic plan in the early spring of each year. The staff will use this plan for development of the following year's budget priorities and the next biennial budget. Budget Kickoff-The Mayor and City Council shall meet in the Spring of even numbered years to plan the following biennial budget and agree on the anticipated revenues on which the preliminary budget will be based. The City Council shall review revenue estimates and preview potential changes to revenues. The City Council shall then approve the revenue amount that will be used by the Mayor to form the initial preliminary budget. The Mayor and City Council will meet additionally in late Summer to re-review the revenue estimates to adjust them more closely to the additional revenue information that has become available with the passage of time. Any changes resulting from this meeting shall be incorporated into the preliminary budget to be considered by City Council. Program Reviews -The Mayor shall perform a periodic review of staff and programs of the City for both efficiency and effectiveness. Alternate methods of delivery will be evaluated for providing services. Programs that are determined to be inefficient, ineffective, or inconsistent with the City Council's strategic goals shall be reduced in scope or eliminated. Preliminary Budget -The Mayor shall propose a preliminary budget in the Fall of even numbered years. The preliminary budget will be developed in accordance with the revenues approved by the City Council at the budget kickoff as amended. If the preliminary budget is based on revenues in excess of those approved by City Council, the Mayor will present the justification for the increased revenues or the additional proposed revenue sources. Structurally Balanced Budget-The Mayor shall present, and the City Council shall adopt a budget in which ongoing revenues equal or exceed ongoing expenditures. One time revenues shall not be used to pay for recurring expenditures. Conservative Expenditure Budgeting-The City will maintain its conservative expenditure budgeting with respect to budgeting existing full time positions for a full year. Acceptance of Grants-The City shall review any requirements for ongoing costs from any grant for operational purposes. Any requirement to fund any portion of the costs as a condition of receipt of the grant shall be a consideration in the decision to accept or reject the grant. Self Supporting Proprietary Funds-The City's water, sewer and golf course enterprise funds will be self supporting along with its internal service funds. The cost of providing services is expected to be fully funded from charges for the service. If the funds produce a loss, rates will be adjusted to achieve, at minimum, a break even status. If debt has been issued which requires a certain level of return, rates and charges will be adjusted to achieve those returns. Health Insurance Reserves-The target reserve for the Health Insurance Fund shall be two times IBNR. Full Cost of Service -The City will define its basic services to our residents. The services will be evaluated as to their full cost. This information will be incorporated and presented as a section of the annual budget. Exhibit A REVENUE AND COLLECTIONS Aggressive Collection Effort-The City will follow an aggressive policy of collecting all monies due the City to the extent that the collection efforts remain cost effective. Reimbursements on a timely basis-Many grants occur on a cost reimbursement basis. To maximize the City's available investable funds, reimbursement should be pursued on a timely basis. User Charges Related to Costs -The City will review fees and charges on an annual basis and will modify charges to adequately keep pace with increasing costs of providing services. User Charges and Taxes Related to Market Rates-The City will consider its user charges and its tax rates in connection with those of comparable sized communities and similar service providers, so that it will provide reasonable rates to maintain its advantage in the market place in attracting businesses and residences to the City of Kent. CAPITAL BUDGETING Committed Special Revenue Funds -The City will maintain its practice of designating its street and capital improvement revenue sources including a percentage of its sales tax collections for the funding of its capital improvement program. Capita/Improvement Program -The City will update its capital facilities plan on an annual basis as required by the Growth Management Act. A preliminary plan will be established early in the budgeting process to serve as a guideline during the year, with a final amendment adopted with the adoption of the operating budgets to reflect the necessary changes in the City's Comprehensive Plan. DEBT POLICIES Projects Funded by Bonds-The use of long-term debt shall be minimized. The City should issue debt only for major capital projects. Debt should only be authorized for projects where the life of the asset constructed or acquired exceeds the life of the debt. Debt Service-To ensure that the City always meets all of their debt obligations, payments on outstanding debt shall be the highest priority before payment for other capital expenditures. Bond Rating-The City will continue to strive to improve its bond rating by improving its financial stability. Debt Capacity -The City strives to maintain adequate available debt capacity for large top priority projects. Bonding Limitations-Direct General Obligation Debt will not exceed 1.5% of assessed value; direct and indirect debt will not exceed 4% of assessed value; duration of the debt will not exceed 15 years. Revenue Debt Covenants-Will be based on the volatility of the revenues. Arbitrage regulations-Will be strictly followed. Special Assessment Guaranty Fund-The City will strive to maintain adequate reserves for retirement of special assessment debt through the maintenance of a special assessment guaranty fund at least 10% of outstanding special assessment debt. lnterfund Borrowing-The City will use interfund borrowing where such borrowing is cost effective to both the borrowing and the lending fund, and the funds will not be needed by the loaning fund during the term of the loan. Such borrowing shall implement Council directed policy in a simplified manner, such as borrowing associated with interim financing for local improvement district projects. A repayment plan Exhibit A should be approved along with the loan. The Mayor may approve loans for a term of one year. The Council must approve loans with terms longer than one year. INVESTMENT POLICY Investment Security & Earnings Maximization-An investment policy was implemented per Ordinance #3278 in 1996 which detail the City's investment guidelines. The primary objective is to preserve the principal of the investment portfolio while maximizing the portfolio's return. FINANCIAl REPORTING Reporting frequency -Monthly budget and actual reports will be available to departments and a quarterly report will be presented to the City Council Operations Committee. Annual Report-Will be completed within 180 days. Reporting Improvements-The City will strive to continue to make improvements in its financial reporting scheme so that information available to the public, the City's governing bodies and other city departments is timely and the best available for sound financial decisions. Bondholders' Report-The City will prepare an annual report to bondholders. Full Disclosure-All public reports will contain full and complete disclosure of all material matters. Financial Trend Monitoring -The City will develop a program to evaluate its financial condition and establish a system for correcting any deficiencies noted. Annual Audits-The City will assist the State Auditor's Office in whatever way possible in conjunction with the preparation of the annual audit, and will implement modifications identified by the State Auditor to improve the City's internal control and financial practices. Updates to these Policies-The Operations Committee ofthe City Council shall review these policies at least every four years. It is recommended that the review is done biennially during the budget process. Exhibit A ACCOUNTING Generally Accepted Accounting Principles-The City will maintain its position as a leader in producing financial reports in conformance with generally accepted accounting principles and pronouncements by the Governmental Accounting Standards Board. Basis of Accounting-The basis for accounting for the general fund, special revenue, debt service, capital projects and agency funds is modified accrual. Modified accrual recognizes revenues when they become both measurable and available to finance expenditures of the current period. The basis of accounting for the enterprise, internal service funds and pension trust fund is full accrual. The appropriate basis is used throughout the budgeting, accounting and reporting processes, with few exceptions as noted below. Full accrual is a method of accounting that matches revenues and expenses with the period to which they relate, rather than focusing on actual cash flows. In this method, for example, an asset is depreciated as it is "used up", and the expense is recognized in periodic increments, rather than assuming the asset holds its value until it is actually disposed of. However, since the focus in budgeting is on the revenues and expendable accounts, depreciation and amortization are not considered budgetary accounts, and are excluded from the budgeting system. Likewise, debt service and capital expenditures are presented as the payments occur, departing frorn GAAP in this regard, in the budget document. Also, Trust and Agency Funds that rnay not be expended for governmental operations are excluded from this budget document. The presentation of the program budget departs from the basis of the legal budget by eliminating inter city transactions and allocating the net increases or decreases from internal services to the using programs. This is done to give the user a more complete picture of the total costs of the operating programs. Exhibit A BUDGETANDACCOUNTINGSTRUCTURE The City of Kent, as all governmental units, operates its budget and accounting system based on a fund structure. Funds are established to segregate specific revenue to ensure their expenditure within applicable legal and contractual provisions. Revenues are allocated to and accounted for in individual funds based on the purposes for which they are to be spent and the means by which the spending activities are to be controlled. The City of Kent operates with seven basic fund types. Within each fund type there may exist one or more individual funds. The City of Kent operates with 26 individual funds. The fund types are listed below under their three major subheadings. FUND/PURPOSE GOVERNMENTAL FUNDS General Fund The General Fund is the principal operating fund of the City. It accounts for the financial resources of the City which are not accounted for in any other fund. Principal sources of revenue are property taxes, sales and use taxes, utility taxes, licenses and permits, state shared revenues, charges for services and interest income. Primary expenditures are for general City administration, police and fire protection, engineering and planning services, park and street maintenance, and cultural and recreational services. Special Revenue Funds Special Revenue Funds are used to account for specific revenue sources that would otherwise be accounted for in the General Fund, but for which there exists certain legal restrictions as to the use of certain revenues. The revenue is segregated into individual special revenue funds to ensure expenditure for a designated purpose. Principal sources of revenue are: state shared fuel tax, earmarked sales and utility taxes and community development block grant funds. The major portion of these resources are transferred to other funds for debt retirement, capital acquisition and specific purposes operations. RELATIONSHIP TO OTHER FUNDS The General Fund "buys" services from the Internal Service Funds: fuel and rental of vehicles from the Equipment Rental Fund; supplies, postage, photocopy, printing and graphics, cable TV services, data processing and telephone services from Central Services; facility maintenance and operation services from Facilities; and insurance from the Insurance Fund. Costs are allocated to all funds in an effort to distribute accounting, budgeting, legal and human resource services as well as street, engineering and park services. General Fund also transfers funds for minor projects. Taxes and grants are collected in the Street Fund, LEOFF1 Retirees Fund, Lodging Tax Fund, Youth Teen Programs Fund, Capital Improvement Fund, Criminal Justice Fund, Community Development Block Grant Fund, Other Operating Projects Fund, and the Kent Events Center Operating Fund. Transfers from the Street and Capital Improvement Funds are primarily to the Capital Project Funds or the L TGO Debt Service Fund. Exhibit A BUDGET AND ACCOUNTING STRUCTURE FUND/PURPOSE Debt Service Funds Debt Service Funds are used to account for the accumulation of resources to be used for the retirement of general long-term debt. The City has three types of general long-term debt for which resources are accumulated: general obligation long-term debt (voted, general obligation long-term debt and L TGO) and special assessment debt. Sources of revenue to fund the retirement of general obligation long-term debt are property taxes and transfers in from other funds. Special assessments are levied and received to retire special assessment debt. Capital Projects Funds Capital Projects Funds are used to account for the financing of major one time only capital projects other than those financed by Proprietary Funds. Sources of revenue are: proceeds of debt issuance, grants, and transfers from other funds. PROPRIETARY FUNDS Enterprise Funds Enterprise Funds are used to account for the financing of services provided to the general public where all or most of the costs involved are paid for by user charges. Operations financed as enterprise funds are operated in a manner similar to private business enterprises. Kent's enterprise funds are funded through water, sewer, and drainage utility charges and recreational charges at the City's golf complex. RELATIONSHIP TO OTHER FUNDS The Debt Service Funds receive the transfers from the Special Revenue Funds, Water Fund and Sewerage Funds to pay principal and interest on L TGO debt issues. Transfers are received from Special Revenue and other funds as a partial source of funds needed to complete projects. The Enterprise Funds "buy" services from the Equipment Rental Fund for equipment rental and fuel; from the Insurance Fund for insurance needs; from the Central Service Funds for stores, telephone, postage, photocopying, printing and graphics, cable TV services, data processing and telecommunications; and from the Facilities Fund for facility maintenance and operation services. The Enterprise Funds also reimburse the General Fund for cost allocations for budgeting, accounting, human resource, legal and engineering costs which relate to Enterprise Funds. Other funds purchase utilities at the same rate as the general public. Exhibit A BUDGET AND ACCOUNTING STRUCTURE FUND/PURPOSE Internal Service Funds Internal Service Funds are used to account for the financing of specific services performed by designated organizations within the City for other organizations within the City. The City's Equipment Rental, Central Service, Facilities Maintenance and Planning, and Insurance Funds provide centrally administered services then generate revenue by billing the organization to which the service is provided. FIDUCIARY FUND TYPES Trust and Agency Funds Trust and Agency Funds are used to account for assets held by the City as trustee or agent for individuals, private organizations or other governmental units. Since their funds are not expendable for City operations they are not included in the budget. However, per state auditor requirements, estimates are provided for their activities. RELATIONSHIP TO OTHER FUNDS Centralizes costs for equipment rental, central services and insurance. These services are "sold" to other funds at cost plus a reserve for future needs. Exhibit A BUDGET AND SPENDING CONTROL SYSTEM Budgets serve as control mechanisms in the operations of governmental units. Legal budgetary (expenditure) control in the City of Kent is maintained at the fund level. Administration can amend budgets, with no overall dollar increase between departments, within a fund Supplemental appropriations that amend total expenditures, or in the case of Proprietary Funds amend working capital, require a City Council ordinance. All operating budgets lapse at the end of the biennium. Within each year of the biennium, a single year allocation will be adopted and operate as if it were an annual budget. General and Special Revenue Funds control expenditures with a legal biennial budget at the fund level. Debt Service Funds operate under the control of the bond indentures which established them. Capital Projects Funds operate under the control oftotal project authorization, rather than the annual budget. Proprietary Funds control expenditures with a flexible budget whereby the expenditure increases must be offset by increased resources. Though budgetary control is at the fund level, budget and actual information is maintained by project, organization, program and object. Both budget and actual information is presented on a GAAP basis of accounting, when presented by fund. The City must adopt its biennial budget by December of the preceding fiscal year. This usually follows six months of analysis by staff and City Council. The first step involves the establishment of the baseline revenue budget by the City Council. The second step is to review the City Council Strategic Goals and begin budget development to assist in achieving those goals. Third, undertake a program review to ensure that current program offerings are in agreement with City Council goals and priorities. The emphasis is placed on the General and Special Revenue Funds since the operation of other funds are tied to ordinances, contractual agreements or separately established rate structures. Once the baseline operations have been reviewed and adjusted based on administrative policy, program expansion is included to the level of projected available resources after the establishment of sufficient fund balances. A mid-biennium review is undertaken during the second year of the biennium in which any changes to the initial estimates of revenues and expenditures are to be reviewed. Such changes will be presented by the Mayor and discussed by the City Council. Any agreed upon changes shall be approved with an ordinance adopting changes to the biennial budget. After the preliminary budget document is prepared, the City Council spends approximately one month reviewing it. Public meetings are held to gather public input. When the budget review and final adjustment period is complete a balanced budget as required by state law is adopted by ordinance. After adoption, periodic budget adjustments that affect total fund expenditures are made as approved by City Council, but a final budget adjustment ordinance covering all approved changes is adopted at year end or the beginning of the next biennium.