1d. Approve Financial Policies1
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MEMORANDUM
CITY OF 16�16
CHANHASSEN
690 COULTER DRIVE • P.O. BOX 147 • CHANHASSEN, MINNESOTA 55317
(612) 937 -1900 • FAX (612) 937 -5739
TO: Mayor and City Council
FROM: Don Ashworth, City Manager
DATE: March 2, 1995
SUBJ: Financial Management Policies
CITY OF
CHANHASSEN, MINNESOTA
FINANCIAL MANAGEMENT POLICIES
December 1994
I. PURPOSE
The City of Chanhassen is accountable to its citizens to carefully account for public funds, to
manage municipal finances wisely, and to plan the adequate funding of services desired by
the public, including the provision and maintenance of public facilities. The city is also
accountable for providing both short -term and long -term financial stability. The city must
ensure that it is capable of adequately funding and providing local government services
needed by the community.
Further, these financial policies provide the framework for the overall fiscal management of
the city. Operating independently of changing circumstances and conditions, these policies
assist the decision making processes of the City Council and Administration.
Most of the policies represent long standing principles, traditions and practices for city
governments. These financial policies will be reviewed periodically to determine if changes
are necessary.
II. OBJECTIVES
In order to achieve this purpose, this plan has the following objectives for the city's fiscal
performance:
1. Provide sufficient financial stability to prevent financial difficulties which may
encumber the city council's ability to make important decisions.
2. Provide sound principles to guide the important decisions, which have significant fiscal
effects, of the city council and management.
3. Provide adequate and accurate information to facilitate the council's decision making.
4. Establish principles which will ensure that the city operates efficiently and effectively.
5. Minimize investment and financial risk.
' 6. Promote sound management of the city's government by providing accurate and timely
information.
' 7. Employ policies which promote sustainable revenue sources.
' 8. Employ fair user charges where the direct benefit is identifiable and the cost is
measurable.
' 9. Provide and maintain public facilities and infrastructure.
' 10. Protect and enhance the city's credit rating.
11. Ensure the legal use and protection of all city funds through a sound system of
' financial and internal controls.
12. Maintain a risk management program that will minimize the impact of legal liabilities,
' natural disasters or other emergencies.
III. FINANCIAL MANAGEMENT POLICIES
' Capital Improvement Budget Policies
' 1. The city has adopted five year capital budgets associated with most capital and
operating funds included in the annual budget, i.e. vehicle and equipment replacement,
municipal facilities, streets /sewer /water, etc. During 1995, and continuing thereafter,
' these budgets will be assimilated into one separate five year capital improvement and
expenditure plan.
2. The city will coordinate development of the capital improvement budget with the
development of the operating budget. Future operating costs associated with new
capital improvements will be projected and included in operating budget forecasts.
3. The city will project its equipment replacement and maintenance needs for the next
five years and will update this projection each year. From this projection, a
maintenance and replacement schedule will be developed and included in the operating
budget. In addition, the city will maintain all its assets at a level adequate to protect
the city's capital investment and to minimize future maintenance and replacement
costs.
4. The city staff will identify through a Capital Funding Plan the estimated costs and
potential funding sources, including the consideration of joint ventures with other
cities, for each capital project proposal before it is submitted to the city council for
approval.
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5. The city will determine the least costly financing method considering he life of the '
asset. g
Revenue Policies
1. The city will estimate its annual revenue by a conservative and analytical process.
2. The city will project revenues for the next five years and will update this projection
annually. Each existing revenue source will be reexamined annually.
3. The city will maintain sound property appraisal procedures. Property value will be
reassessed at least every four years at the legally mandated market value for each class
of property.
4. Whenever user charges and fees are determined to be appropriate and the direct
benefits are identifiable, the city will establish and revise annually, all user charges
and fees at a level related to the cost of providing the service (operating, direct,
indirect and capital).
5. The city will set fees and user charges for each Enterprise Fund, such as Water and
Sewer, and recreational funds in total, at a level which fully supports the total direct
and indirect costs and capital costs of the activity. Indirect costs include the cost of
annual depreciation of capital assets.
6. The city will recover the prior year's net property tax delinquencies and abatements in
setting the annual property tax levy. I
Debt Policies
1. The city will confine long -term borrowing to capital improvements or projects which
cannot be financed from current revenues. In addition, the city will not incur debt to
support current operations.
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When the city finances capital projects by issuing bonds, it will pay back the bonds
within a period not to exceed the expected useful life of the project.
In all bond issues, the city will attempt to retire 50% of the principal amount issued
within ten years.
The city will attempt to keep the maturity of General Obligation Bonds and General
Obligation Guaranteed Bonds at or below 15 years.
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Total debt service for General Obligation Ad Valorem debt should not exceed ten
percent (10 %) of total annual locally generated operating revenue in the General Fund
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and Special Revenue Fund.
6.
Total General Obligation debt subject to statutory debt limits will not exceed two
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percent (2 %) of the estimated market valuation of taxable property in the city.
7.
Where possible, the city will use special assessment, revenue or other self - supporting
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bonds instead of General Obligation Ad Valorem Bonds.
8.
The city will maintain open communications with bond rating agencies regarding its
financial condition. The city will follow a policy of full disclosure in every financial
report and bond prospectus.
' 9.
The Housing & Redevelopment Authority (HRA) and Economic Development Agency
will develop a set of written policies concerning the use of Tax Increment Financing
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(TIF) as a development incentive.
Reserve Policies
'
Enterprise Fund Reserve Policy
' 1. Over a three year period, each enterprise fund shall set rates and charges /user fees
such that there is no cumulative reduction in net fund equity, including depreciation
and transfer of funds. Recreation type funds shall be considered on a combined basis
' for compliance with this policy.
2. Equity transfer of funds from an enterprise fund to the General Fund should only be
done on a one -time exception basis, to fund any unusual, unanticipated expenses. In
no event shall equity transfers be made in consecutive years.
' General Fund Reserve Policy
1. The city shall not use tax anticipation borrowings to cover operating expenses.
' 2. The y ear end fund balance shall be adequate to cover 50% of the percentage of which
property taxes and HACA comprise total General Fund revenue sources for the
' following year.
3. The city will continue to reduce fund balances for the portion above the formula
' amount for capital improvement projects such as building expansion/refurbishing.
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Investment Policies
1. The city will make cash flow analyses of all funds on a regular basis. Disbursement,
collection and deposit of all funds will be scheduled to ensure maximum cash
availability for investment.
2. When permitted by law, the city will pool cash from all funds for investment
purposes.
3. The city will have at least 97% of its cash funds earning interest.
4. Investment maturities should be matched to operating cash needs and debt service
requirements. No more than 50% of cash and investments shall have average
maturities exceeding 5 years.
5. The preservation of principal shall be the paramount objective of the investment
program. Management of the portfolio will consider safety, liquidity and yield, in that
order, to ensure the preservation of principal.
6. It is the intent of this policy to substantially reduce the interest rate risk and duration
of the current investment portfolio. As current investments mature or are liquidated,
reinvestment of these funds will only be in accordance with these adopted financial
management policies.
7. Compliance with these policies shall be through the finance director. The finance
director shall report to thy: cityunl at least quarterly the condition of the city's
investment portfolio, including stated value, current market value, current yield and
conformance to city policies. In addition, city administration shall establish a check
and balance system with each broker handling city investments whereby a control
number must be received and confirmed by them before any investment is purchased,
sold, or traded per an ordered issue by the finance director.
Each broker shall sign an affidavit stating that they have read the city's financial
policies and that the investment being requested to be made by the finance director
and their firm conforms to the adopted financial policies.
8. The city shall have no investments in Risk Category Three as defined by
Governmental Standard Board Station No. 3.
Accounting, Auditing and Financial Reporting Policies
1. The city will maintain the GFOA Certificate of Excellence in Financial Reporting.
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2.
Accounting policies will reflect the principle of charging current taxpayers and /or
users for the full cost of providing current services.
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3.
Regular monthly reports will present a summary of financial activity by major types of
funds as compared to budget.
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4.
An independent public accounting firm will perform an annual audit and will publicly
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issue an opinion concerning the city's finances.
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Risk
Management Policies
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1.
The city will maintain a Risk Management Program that will minimize the impact of
legal liabilities, natural disasters or other emergencies through the following activities:
Prevent
a. Loss Prevention. negative occurrences.
b. Loss Control. Reduce or mitigate expenses of a negative occurrence.
C. Loss Financing. Provide a means to finance losses.
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d. Loss Information Management. Collect and analyze relevant data to make
prudent loss prevention, loss control and loss financing decisions.
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2.
The city's Risk Management Program will:
' a. Analyze all of the city's risks.
b. Avoid risks whenever cost effective.
C. Reduce risks whenever cost effective.
3. The city will maintain an active Safety Program.
4. The city will periodically conduct educational safety and risk avoidance programs,
through our various departments and with the participation of Berkley Administrator
' (city insurer).
5. The city will maintain the highest deductible amount, considering the relationship
between cost and the city's ability to sustain the loss. - w , -K,> , (a 4T
Operating Budget Policies
' 1. The city will adopt a balanced budget in accordance with state statute.
2. The city will match all current expenditures with current revenues. The city will avoid
budgetary procedures that balance current expenditures at the expense of meeting
future years' revenues.
3. The city shall ensure that the Capital Projects Administration Fund has a balance, at
year end, of at least 5% of the total operating budget, including General, Special
Revenue and Capital Funds —such to act as a contingency fund to provide a resource
for unanticipated expenditures of a non - recurring nature.
4. The city manager, when submitting the proposed budget to the city council, will
submit a balanced budget in which appropriations will not exceed the total of the
estimated General Fund Revenue and the fund balance available after applying the
General Fund Reserve Policy.
5. Prior to adopting the General Fund annual budget, the city council shall confirm that
the Capital Projects Fund has a sufficient projected balance to meet the City's Reserve
Policy.
6. In the event there is an unanticipated shortfall of revenues in a current year budget,
the city manager may recommend the use of a portion of the General Fund balance,
not to exceed the amount available after deducting amounts reserved for items not
readily convertible to cash or reserved for working capital or already appropriated to
the General Fund current budget, as shown on the most recent General Fund Reserve
Policy as established by the city council.
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The budget will provide for adequate maintenance of the capital plant and equipment,
and for their orderly replacement.
The budget will provide for adequate funding of all retirement systems.
The city administration will prepare regular monthly reports comparing actual revenues
and expenditures to the budgeted amount.
The Operating Budget will describe the major goals to be achieved and the services
and programs to be delivered for the level of funding provided.
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