Memorandum
City of
City Manager’s Office
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To: |
Dave Corliss Interim City
Manager |
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From: |
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cc: |
Casey Liebst,
Budget Manager Ed Mullins, Finance
Director |
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Date: |
June 28, 2006 |
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Re: |
Reserve funds |
The purpose of this memo is to
provide descriptions of the various reserve funds held by the City of
Descriptions
Reserve funds are unbudgeted, and used for extraordinary or non-predictable expenditures. An accounting of the various funds is included in the annual Comprehensive Financial Accounting Report (CAFR) produced by the Finance Department. Please find below a description of each reserve fund.
Capital Improvement Reserve
The Capital Improvement Reserve
Fund is authorized by KSA 12-1,118 and may be used to finance any public
improvement in the adopted capital improvement plan (CIP) as well as
maintenance of existing facilities. The
City of
Equipment Reserve
The Equipment Reserve Fund is
authorized by KSA 12-1,117 and is used by the City of
Sales Tax Reserve
Another capital improvement reserve fund, this one is financed through the transfer of a portion of the County-wide sales tax revenue that is initially deposited in the General Fund. Expenditures are typically for parks and recreation and health facility projects as well as payment of debt service on sales tax bonds.
Guest Tax Reserve
Established by Charter Ordinance No. 30, a portion of the 5% transient guest tax revenues are transferred from the Transient Guest Tax Fund to this reserve fund for expenses associated with economic development and the promotion of tourism.
Liability Reserve
The Liability Reserve Fund is authorized by KSA 75-6110 and allows for a special property tax to be levied, although the City of Lawrence finances its fund by transfers from operating funds (General, Water and Sewer, etc.) and interest earnings. As a government that self-insures some or all of our tort liability expenses, we attempt to keep this fund at a level that allows for absorption of unpredictable liability claims.
Workers Compensation Reserve
This fund is authorized by KSA 44-505f and used by cities that self-insure for workers compensation claims. The unpredictability of expenditures is a factor in establishing a reasonable fund balance. Transfers from operating funds and interest earnings are sources of funding for all of the expenses associated with workers compensation claims handled by the City.
Expenditures
Attached please find information concerning expenditures from the Capital Improvement Reserve, Equipment Reserve, and Sales Tax Reserve funds for the past five years.
Policy Recommendations
Due to the lack of predictability in forecasting expenditures for the liability and workers compensation reserve funds, the recommendations for these two funds would be to 1) establish fund balance policies for each fund based upon historical claims experience, and 2) develop an equitable method of assessing “per employee” or “per claim experience” costs to departments within the various funds as an alternative to our current practice. Incentives to manage employee work-related injury risk would be associated with the “per claim experience” method.
For the remaining funds, policies will be developed with an emphasis on maintaining reserves for emergencies and/or unforeseen expenditures while still providing annual funding for various maintenance projects and equipment purchases. Further detail for the capital improvement, equipment, and sales tax reserve fund is provided below.
Capital Improvement Reserve
A portion of funds could be used to finance maintenance projects that are currently being bonded, once a policy for a fund balance level has been developed. The chart below illustrates an example for how funding for street maintenance and other large maintenance projects could be established in 2007:
|
Projected Fund Balance (01/01/07) |
$2,717,050 |
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Transfers in from General Fund |
300,000 |
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Interest earnings |
50,000 |
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Total resources in 2007 |
3,067,050 |
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Estimated expenditures in 2007* |
1,034,050 |
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Street maintenance in 2007 |
233,000 |
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Total expenditures in 2007 |
1,267,050 |
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Projected Fund Balance (12/31/07) |
1,800,000 |
*An example of expenditures in 2006 is parking garage
repairs/maintenance
Sales Tax Reserve
In addition to paying the debt service on sales tax supported general obligation bond issues, this fund would continue funding the construction/maintenance of recreation facilities and improvements. A fund balance for unforeseen projects (roofs, Memorial Park, etc.) should be maintained as well. Key to the development of a policy for this fund is establishing a five-year plan for the financing of future recreation projects from all sources (debt, cash, operating, etc.). For 2007, we are recommending the use of some sales tax funds for street maintenance projects:
|
Projected Fund Balance (01/01/07) |
$2,666,023 |
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Transfers from General Fund
(county sales tax) |
2,296,000 |
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Interest earnings |
55,000 |
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Total resources in 2007 |
5,017,023 |
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Estimated expenditures in 2007* |
700,000 |
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Debt Service payments in 2007** |
1,650,114 |
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Street maintenance in 2007 |
866,909 |
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Total expenditures in 2007 |
3,217,023 |
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Projected Fund Balance (12/31/07) |
1,800,000 |
*An
example of expenditures in 2006 is painting the outdoor aquatic center.
**
Will include $900,000 in new parks & rec projects:
§
§
§ Road to Sesquicentennial Point
§
§ Rails to Trails – engineering
Equipment Reserve
Recommendations for this reserve fund include the development of a five year equipment replacement schedule for the organization, with the intent that this fund along with other sources (operating budgets, debt, federal/state funds, etc.) would be identified as funding sources. Once the long term equipment needs are identified, a policy on fund balance and annual replacement schedules would be developed.
|
Projected Fund Balance (01/01/07) |
$2,078,159 |
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Transfers from General Fund |
300,000 |
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Interest earnings |
50,000 |
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Total resources in 2007 |
2,428,159 |
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Estimated expenditures in 2007* |
850,000 |
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Total expenditures in 2007 |
850,000 |
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Projected Fund Balance (12/31/07) |
1,578,159 |
*An
example of expenditures in 2006 is a back-up generator for the City Hall
computer system.