3o. Approval of Financial PoliciesI MEMORANDUM
CITY OF S,5
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: June 7, 1995
' SUBJ: Approval of Financial Policies
This item has appeared on several agendas over the last six months. To the best of my
' knowledge, we had reached agreement that the attached financial policies represented what
the city council was looking for with the exception of refining the financial calendar that
' would act as an appendix to the document. I am in hopes that I can convince the city council
to approve the attached financial policies with the knowledge that we will continue to work
on the calendar and have that submitted to the council for one of our next meetings. The
' importance of getting the financial policies adopted at this point recognizes that we are
nearing the end of the audit process and I really do not wish to be written up for not having
financial policies in place.
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Councilman Senn did submit his proposed calendar (see attached). The emphasis of that
calendar is to ensure that the process not only starts early, but that we get to a point of
literally being able to adopt the budget by mid - September. The continued problem with that
concept is that we do not know what revenues we will have available for the following year
prior to September: Accordingly, I do not have a problem with obtaining interdepartmental
requests early arid, establishing meetings wherein department heads convey their requests for
the following year to � the city council. I think we can also use that early process to set
priorities as to which of those programs /tasks should attempt to be worked into the final
budget. However, again, if we do not have
to literally adopt a budget in mid - September
with Mark and determine how this dilemma
1 revenue picture, it becomes very difficult
in, I have not had an opportunity to meet
be resolved, but I believe such is possible.
Again, I would ask that the city council approve the attached financial policies with the
condition that the calendar will be submitted back to the council within the next 30 to 60
days.
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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.
IL 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.
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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.
5. The city will determine the least costly financing method considering the life of the
asset.
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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.
Debt Policies
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.
2. 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.
3. In all bond issues, the city will attempt to retire 50% of the principal amount issued
within ten years.
4. The city will attempt to keep the maturity of General Obligation Bonds and General
Obligation Guaranteed Bonds at or below 15 years.
5. 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
and Special Revenue Fund.
' 6. Total General Obligation debt subject to statutory debt limits will not exceed two
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
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
(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 year 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.
Investment Policies
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 the city council 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.
A ccounting, Auditing and Financial Reporting Policies
2.
The city will maintain the GFOA Certificate of Excellence in Financial Reporting.
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.
4. An independent public accounting firm will perform an annual audit and will publicly
issue an opinion concerning the city's finances.
5. The Finance Director will prepare an action plan for submission to the city council on
issues raised in the annual audit within sixty days from submission to the State of
Minnesota Auditor's Office.
6. Develop a calendar of financial activities to be used as a guideline for planning
purposes on a yearly basis.
Risk Management Policies
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:
a. Loss Prevention. Prevent negative occurrences.
b. Loss Control. Reduce or mitigate expenses of a negative occurrence.
C. Loss Financing. Provide a means to finance losses.
d. Loss Information Management. Collect and analyze relevant data to make
prudent loss prevention, loss control and loss financing decisions.
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.
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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MARCUS CORP
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filing
Minn. Stat.
Aug. 19
Last day to post notice of first and last days for
affidavits of candidacy for November city election.
205.13, subd. 2
Aug. 19
If location of polling place has changed, last day before
Minn. Stat.
primary for city to send nonforwardable notice to registered
204B.16,
voters stating location of new polling place using sample
subd. 1 a
'
notice prepared by the secretary of state.
Aug. 19
Last day for council resolution appointing election judges
Minn. Stat.
for primary election Sept. 13.
20413.21,
subd. 2
'
Aug. 20
Last day for county auditor to notify city clerk of hearing
Minn. Stat.
dates school district and other districts have picked for
275.065,
budget hearing. City cannot hold its truth in taxation
subd. 6
'
hearing on dates these districts choose, or at time of county
hearings, Dec. 13 and 20. Once the city is notified, it has
until Sept. 15 to select its hearing dates.
Aug. 23
Last day for voters to register before Sept. 13 primary.
Minn. Stat.
Pre- registration closes at 5 p.m.
201.061,
subd. 1
Aug. 29
Last day for city clerk to post notice of state primary
Minn. Stat.
election.
20413.34,
subd. 1
'
Week of Aug.
For cities holding municipal primary election on Sept. 13,
Minn. Stat.
29 (or the
clerk must give first published notice of election. Clerk
205.16, subd. 1
week
must publish notice a second time next week. Fourth class
'
previous)
cities may choose only to post. City should print notice by
Tuesday, to allow a full two weeks' notice. Publication in
the week prior to Aug. 29 is allowable, but apparently the
'
two publications must be in successive weeks.
Aug. 30
First day for filing affidavits of candidacy for November 8
Minn. Stat.
city election, if there was no municipal primary election.
205.13,
'
subd. 1 a
Aug. 30
First day before Sept. 13 primary for cities using optical
Minn. Stat.
'
scan voting systems to test equipment. Public notice must
206.83
be given two days before the test. Last day to test is Sept.
12,
Aug. 31
Last day for department of revenue to certify to county
Minn. Stat.
auditor cities' homestead and agricultural credit for 1995.
273.1398,
subd. 6
Sept. 1
Last day to file notice with attorney general that city plans
Minn. Stat. 6.59
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to contest cost of audit by state auditor.
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