HomeMy WebLinkAbout20-11• RESOLUTION NO. 2 a -1I
A RESOLUTION of the City Council adopting the City's new Financial
Management Policy and rescinding Resolution 21 -04.
WHEREAS, on December 7, 2004, a Financial Management Policy for the City of Port
Angeles was adopted by Resolution 21 -04; and
WHEREAS, a Financial Management Policy serves as a guide for executing the budget
and controlling the financial parameters of the various City programs and services funded in said
budget; and
WHEREAS, it is in the best interest of City government to periodically update and revise
its Financial Management Policy to ensure the legal use of financial resources through an
effective system of internal controls and to maintain appropriate financial capacity for present
and future needs.
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Port
Angeles that the Financial Management Policy attached hereto as Exhibit A is hereby adopted,
and Resolution 21 -04 is hereby rescinded.
PASSED by the City Council of the City of Port Angeles at a regular meeting of said
Council held on the 1 5th day of November , 2.01
ATTEST:
Ja . sa Hurd, City Clerk
APPROVED AS TO FO
Wiliam E. Floor, City Attorney
7
MAYO
G:\LEGALIa O RDINANCES &RESOLUTIONS\RESOLUT1ONS,2O11\l 1.Financial Management Policy.05.18.11.wpd
General Financial Goals
1. To ensure delivery of an exceptional level of municipal services by assuring reliance on ongoing
resources and by maintaining a stable financial base.
2. To ensure that the City is in a position to respond to changes in the economy or new service
requirements without an undue amount of financial stress.
3. To maintain a good credit rating in the financial community and assure taxpayers that City
Government is well managed financially and maintained in sound fiscal condition.
4. To adhere to the highest accounting and management policies as set by the Government Finance
Officers' Association, the Governmental Accounting Standards Board, and other professional
standards for financial reporting and budgeting.
Primary Budget Responsibility
1. The City Council has final responsibility for approving the annual Operating Budget and Capital
Facilities Plan.
Financial Management Policy
The City Manager is responsible for preparing and submitting to the Council a tentative budget for the
fiscal year. The City Manager is also responsible for keeping the Council fully advised of the financial
condition of the City and its future needs.
3. Department directors, under the direction of the City Manager, are responsible for proposing
programs, recommending funding levels, and formulating budget proposals for implementing service
programs in accordance with established goals and directives.
4. The Finance Department is responsible for coordinating the overall preparation and administration of
the City's budget in compliance with applicable State of Washington statutes governing local
government budgeting practices.
The Finance Department provides revenue budget estimates, assists department staff in identifying
budget problems and formulating alternative solutions, and prepares and distributes the final budget
document.
5 To facilitate and implement the budget process, the Finance Director will provide the Council with an
annual budget calendar in accordance with State law.
Operating Budget Policies
1. The operating budget will define the City's annual financial plan as developed by the City Council and
Administration in establishing goals and objectives for the ensuing year.
Additional staff positions should be recommended only after the need has been fully substantiated.
An increase in the number of full -time equivalent position must be approved by the City Council. The
City Manager has the authority to approve additions and/or changes to temporary, seasonal, and
part -time positions. Nothingin this paragraph is intended to diminish or interfere with the City
Manager's right to control the appointment and removal of City employees.
2. The budget will reflect the projection of all revenues and all expenditures and present the level of
governmental services and method of allocating costs in the provision of these services to the
community.
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3. Current operating expenditures will be paid from current revenues and cash carried over from the
prior year after reserve requirements are met. The City will avoid budgetary and accounting practices
which balance the current budget at the expense of future budgets.
4. The City will maintain a level of expenditures which will provide for the public well -being and safety of
the residents of the community.
5. The operating budget will provide for appropriate design, construction, maintenance and replacement
of the City's capital infrastructure, plant, and equipment.
6. A multi -year vehicle and equipment maintenance and replacement schedule will be developed based
on the City's projections of its future replacement and maintenance needs. The projections will be
updated and the schedule revised on an annual basis.
7. The budget will provide sufficient levels of maintenance and replacement funding to ensure that all
capital facilities and equipment are properly maintained and that such future costs will be minimized.
8. The following criteria must be met to qualify any portion of the year -end General Fund surplus for
one -time operations, nonrecurring emergency capital expenditures, or dedicated to the Capital
Facilities Plan:
a. There are surplus balances remaining after all reserve requirements, and current expenditure
obligations are met.
b. An analysis has occurred assuring that the City has an adequate level of short and Tong -term
resources to support the proposed use of surplus balances.
c. The funds are specifically appropriated by the City Council.
9. Year -end surpluses in the Street Fund and Excise Tax Funds should be designated for use in the
Capital Facilities Plan or be used for one -time capital expenditures for street and parks projects. Use
of surpluses for these purposes must be approved by the Council.
Budgetary Control Policies
1. The budget will be developed and administered in compliance with applicable State of Washington
budgetary statutes.
2. The Finance Department will maintain a system for monitoring the City's budget performance. The
system will include provisions for amending the budget during the year in order to address
unanticipated needs or emergencies.
3. Appropriations requested after the original budget is adopted will be approved only after consideration
of the availability of current and future revenues. Such appropriations must be approved by City
Council.
4. Accounting and reporting practices will be maintained to provide accurate and timely monitoring of the
City's budget performance.
5. Monthly budget reports will be issued by the Finance Department to report on actual performance
compared to budget estimates. The department also assists in implementing any needed corrective
action approved by the City Manager.
6. Current revenues and operating expenditures will be reviewed quarterly by the City Council, and the
Finance Director will prepare a mid -year assessment of the City's financial position for presentation to
the Council.
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Revenue Policies
1. The City will strive to maintain a diversified and stable revenue system to protect against short -term
fluctuations in any one revenue source. The revenue mix should combine all available revenue
sources to minimize the effect of an economic downturn.
2. Because revenues, especially those of the General Fund, are sensitive to local and regional
economic conditions, revenue estimates will be conservative and will be made by an objective,
analytical process.
3. As much as is reasonably possible, City services that provide private benefit should be supported by
fees and charges in order to provide maximum flexibility in the use of general revenues to meet the
cost of services of broader public benefit. The City will establish all user charges in relation to the
cost of providing the services. The cost of providing services tied to user fees will be recalculated
annually to identify the impact of inflation and other cost increases and to determine the need for rate
adjustments.
4. Fees and user charges for services provided by the City's enterprise funds should recover full costs,
including all direct costs, indirect costs, and capital costs in the form of annual depreciation of capital
assets. The City's current enterprise funds are the Electric, Electric Conservation, Water, Water
Treatment Plant, Wastewater, Solid Waste Transfer Station /Landfill, Solid Waste Collection,
Stormwater, and Medic I Funds. In addition to charging user fees, the Medic I Fund receives financial
support from the General Fund.
5. Proceeds of specific revenue sources that are legally restricted to expenditures for specified purposes
will be accounted for in separate special revenue funds. Budgeted special revenue funds will be
included and reviewed in the City's annual budget process.
6. The City will follow an aggressive policy of collecting all monies due, to the extent that the collection
efforts are cost effective.
Capital Improvement Policies
1. It is the City's policy to ensure that adequate resources are allocated to preserve existing
infrastructure and other capital assets before targeting resources toward construction or acquisition of
public facilities or major equipment.
2. A long -range Transportation Improvement Plan (TIP) will provide the framework for the City's future
investment in transportation related infrastructure. This ensures that infrastructure projects
incorporated into the Capital Facilities Plan (CFP) will be the embodiment of the officially stated
direction of the City's Comprehensive Plan and supporting documents.
3. The City will develop a multi -year Capital Facilities Plan (CFP) to identify and coordinate
infrastructure, facility, and equipment needs in a way that maximizes the return to the community. All
capital improvements will be made according to the adopted CFP.
The Capital Facilities Plan will be formulated using an analysis of long -term, overall resources and will
include projected funding sources and ongoing operations and maintenance costs. Future changes
in economic or demographic factors identified in the financial forecasting process will be incorporated
in the capital budget projections. The plan will be updated annually.
4. The first year of the Capital Facilities Plan will constitute the capital budget for the ensuing budget
year. The capital budget and the base operating budget will be reviewed at the same time to assure
that the City's capital and operating needs are evaluated in a balanced manner.
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5. The City may administer a Local Improvement District (LID) program. For capital projects whose
financing depends in part or wholly on an LID, interim financing may be issued to support the LID's
portion of the project budget. The amount of the interim financing shall be the current estimate of the
final assessment roll as determined by the administering department.
6. The City will determine the most cost effective financing method for all new projects. Whenever
possible, the City will use intergovernmental assistance and other outside resources to fund capital
projects. Additional funding may come from designated surpluses in the General Fund and certain
special revenue funds as outlined in the operating budget policy.
Debt Management Policies
All borrowing is subject to approval by the City Council. The basic objectives of the City's debt
management policy are:
a. To achieve the lowest possible cost for borrowing.
b. To ensure access to the bond market to adequately provide the capital needed to finance public
improvement and other long -term development objectives.
c. To maintain strong and sound credit demonstrated by its commitment to meet all obligations in a
timely fashion.
d. To maintain a level and structure of outstanding indebtedness that does not lead to excessive
debt service requirements, thereby avoiding unnecessary strains on the operating budget.
e. To maintain the confidence of lending markets and the taxpayers.
f. To maintain debt service coverage of 1.5% or higher. (1.25% is required)
A. Short -Term Debt
1. Short -term debt covers a period of three years or less. With careful monitoring and planning of cash
inflow and outflow requirements, it is intended that the City will avoid the use of short term
indebtedness to the maximum extent possible.
2. The City may use short -term debt to cover temporary cash flow shortages resulting from delay in
receipting tax revenues or issuing Tong -term debt or to finance capital construction.
3. Interfund loans with a repayment period of three years or less, may be used to meet short -term cash
flow needs as an alternative to outside debt instruments. Interfund loans will be permitted only if an
analysis of the lending fund indicates excess funds are available and that the use of these funds will
not adversely impact current operations.
B. Long Term Debt
1. Long -term debt is defined as debt which exceeds three years. The City will confine long -term
borrowing to capital improvements that cannot be financed from current revenues.
2. Acceptable uses of bond proceeds will include items which can be capitalized and depreciated.
Refunding bond issues designed to restructure current outstanding debt is an acceptable use of bond
proceeds provided an analysis is done which determines the net present value (NPV) of savings is
favorable for the City.
3. Where possible, the City will use special assessment revenue, or other self - supporting bonds, instead
of general obligation bonds.
4. The City will not use long -term debt for current operations.
5. The City will maintain communications with bond rating agencies regarding its financial condition.
The City will follow a policy of full disclosure on financial reports and bond prospectus including
Financial Management Policy -- Page 4
proactive compliance with disclosure to the Electronic Municipal Market Access (EMMA) according to
guidelines established by the Municipal Securities Rulemaking Board (MSRB).
6. General Obligation Bond Policy:
a. Before general obligation bond propositions are placed before the voters, projects proposed for
financing through general obligation debt should be included in the Capital Facilities Program and
be accompanied by an analysis of the future operating and maintenance costs associated with
the project.
b. Bonds will not be issued for a longer maturity schedule than a conservative estimate of the useful
life of the asset to be financed.
7. Limited Tax General Obligation (LTGO) Bond Policies:
a. As a precondition to the issuance of limited tax general obligation bonds, alternative methods of
financing should also be examined. .
b. Limited tax general obligation bonds will be issued under certain conditions:
• A project in progress which requires monies not available from alternative sources;
• Matching fund monies are available which may be lost if not applied for in a timely manner; or
• Catastrophic or emergency conditions exist.
8. Unlimited Tax General Obligation (UTGO) Bonds and Legal Debt Limits:
Under RCW 39.36.020(2), the public may vote to approve UTGO bond issues for general government
purposes in an amount not to exceed 2.5% of assessed valuation. Within the 2.5% limit, the Port
Angeles City Council may approve LTGO bond issues and/or lease purchases up to 1.5% of the
City's total assessed value. (RCW 39.36.020(2) and RCW 35.42.200). In addition, state law provides
for an additional 2.5% of assessed valuation for parks and open space purposes with a vote of the
public.
Financial Stability Policies
1. Part of financial stability is to maintain adequate reserves and fund balances. The definition of Fund
Balance is the net worth of a fund, measured by total assets minus total liabilities.
2. in the governmental funds, the City recognizes the following hierarchy of fund balance classifications,
which are based primarily on the extent to which the City is bound by constraints placed on
resources:
• Nonspendable: Amounts that cannot be spent due to form (such as inventories and pre -paid
amounts), and amounts that must be maintained intact legally or contractually (including the
corpus or principal of a permanent fund). Also, long -term loan and notes receivables, and
property held for resale would be reported here unless the proceeds are restricted, committed, or
assigned.
• Restricted: Amounts constrained for a specific purpose by external parties, constitutional
provision, or enabling legislation.
• Committed: Amounts constrained for a specific purpose as authorized by the City Council.
Additional action by the Council is required in order to remove or change the constraints placed
on the resources. The action to constrain resources must occur prior to year -end; however, the
amount can be determined in the subsequent period.
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• Assigned: For all governmental funds other than the general fund, any remaining positive
amounts not classified as nonspendable, restricted, or committed. For the general fund, the City
Manager has been delegated authority to assign amounts intended to be used for a specific
purpose. All assigned fund balance requests from departments must be approved in writing by
the City Manager and provided to the Finance Department by year -end in order to be officially
considered assigned. Amounts reported as assigned should not result in a deficit in unassigned
fund balance.
• Unassigned: For the general fund, amounts not classified as nonspendable, restricted,
committed, or assigned and are available to use for any purpose. The general fund is the only
fund that would report a positive amount in unassigned fund balance. For all other governmental
funds, unassigned fund balance is the amount expended in excess of resources that are
nonspendable, restricted, committed, or assigned. If this results in a deficit in unassigned fund
balance, then assigned fund balance shall be reduced.
3. Special Revenue Funds will maintain sufficient fund balances to provide adequate cash flow and to
withstand downturns in the economy. These fund balances will be analyzed annually.
4. The General Fund's targeted unassigned fund balance will be a minimum of 10% of expenditures,
excluding capital expenditures. This fund balance will be established and maintained to:
• Offset unanticipated downturns and necessary revisions in any general municipal purpose fund;
• Provide a sufficient cash flow for daily financial needs at all times; and
• Establish adequate level of reserves to provide for the timely replacement of equipment.
• Sustain City services in the event of a catastrophic event such as a natural/manmade disaster or
a major downturn in the economy.
If unassigned fund balance falls below the required minimum level, the City Manager shall notify the
Council immediately. The Council must adopt a plan to restore this balance to the target level within
24 months.
In addition, the general fund will maintain a committed fund balance to be used as a contingency as
specified in PAMC 3.04.040. There are no minimum requirements on the level of contingency fund
balance.
There are no specific requirements on the level of assigned fund balance in the general fund, unless
future revenue streams are specified by the donor or source of funding.
5. The City will maintain the following reserves for the Electric, Water, Wastewater, Solid Waste
Collection, Solid Waste Transfer Station /Landfill, and Stormwater Funds:
a. An operating reserve will be established and maintained to provide sufficient cash flow to meet
daily financial needs as recommended by the City's financial advisor. The reserve requirements
will be reviewed every three years. The reserve will be based upon 60 days operating expenses
of the Electric, Water, Wastewater, and Solid Waste Collection Funds. The reserve will be based
upon 90 days operating expenses of the Solid Waste Transfer Station /Landfill, and Stormwater
Funds. Operating expenses exclude ending fund balances, capital purchases, construction
costs, debt service payments, and transfers.
b. A rate stabilization reserve will be established and maintained for the Electric Fund to provide a
means to mitigate wholesale power purchase cost increases. A rate stabilization reserve will be
established and maintained for the Wastewater Fund to provide a means to mitigate retail rate
increases based on unforeseen cost increases, These accounts will be analyzed annually to
ensure an adequate amount is placed in reserves.
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c. A post - closure maintenance reserve within the Solid Waste Transfer Station /Landfill fund will be
established and maintained to provide sufficient cash flow to meet the anticipated cost of
maintenance in accordance with State law. This reserve requirement will be reviewed annually.
d. Bond reserves will be created and maintained for the Electric, Water, Wastewater, and
Stormwater Funds in accordance with the provisions set forth in the bond covenants.
A contingencies and replacement reserve for the Electric fund will be established and maintained
in accordance with bond covenants.
f. A water treatment plant operation and maintenance reserve will be established and maintained to
offset its operating costs to the Water Fund.
6. The City will maintain reserve funds to meet requirements for the guarantee of debt service in
compliance with bond indenture agreements.
The City will maintain the self - insurance funds at a sufficient level to provide health care and worker's
compensation benefits and avoid catastrophic loss.
8. The City will maintain equipment replacement reserves as specified in the City's Equipment
Replacement and Vehicle Use Policy.
9. The City will maintain an actuarially funded Firemen's Pension Fund as determined by actuarial
study.
10. The City will maintain adequate reserves in the Information Technology Fund to ensure timely
replacement, upgrade, and/or additions to the City's technology infrastructure.
Investment Policies
1. The Finance Director will prepare an Investment Policy (separate from the Financial Management
Policy) that sets forth the criteria for the operation of the investment portfolio. The primary objective
of the investment Policy is to establish a conservative set of investment criteria to prudently protect
the City's portfolio and enable the City to generate a fair rate of return from its investment activities
while assuring safety and liquidity to meet its cash flow needs.
2. The Finance Director will periodically review the Investment Policy and submit any revised policy to
City Council for adoption.
3. As a commitment to a quality investment program, the Investment Policy will be developed under the
guidelines published by the Association of Public Treasurers of the US and Canada and will be
submitted to the association's Investment Policy Certification Program.
Financial Planning Policies
The City engages in a financial planning process which encompasses important policy considerations and
provides guidelines for all aspects of the City's financial management strategy.
1. Transportation Comprehensive Plan (TCP) - The purpose of the TCP is to supplement and expand
the goals and policies stated in the Comprehensive Plan for the City of Port Angeles. The TCP
addresses the City's transportation standards, existing deficiencies, traffic forecasting, future
Financial Management Policy — Page 7
transportation system needs and funding, including a planning -level cost estimate and a project
prioritization scheme for the most likely alternatives to be implemented.
2. Transportation Improvement Program (TIP) - The TIP is a six -year specific program of transportation
improvements for roadways, transit, and other transportation infrastructure, including non - motorized
improvements. The TIP consists of projects drawn from the TSFP and CFP as well as local plans
and programs. The projects are directed at improving the overall efficiency and capabilities of the
existing transportation system.
3. Capital Facilities Plan (CFP) - The CFP is a comprehensive approach which allows for optimal capital
planning by considering all possible capital projects. The multi -year plan focuses on major pieces of
equipment and what facilities to construct, their location, timing, projected cost, and funding sources.
The plan is directed at improving the infrastructure of municipal services and includes projects valued
over $30,000.
4. Financial Forecasting - The five -year forecast provides the contextual framework within which the City
Council develops its annual and long term goals and objectives and the management team prepares
its annual operating budget. The Finance Department updates the forecast each year to adjust for
changes in economic conditions and trends, changes in Council priorities and policies, and other
variables that might affect the City's ability to provide needed services and maintain its fiscal integrity
in future years. The forecasting process allows Council and staff to make reasonable assumptions
about the community to formulate a forward - looking financial plan.
Accounting and Reporting Policies
1. The City's accounting and financial reporting systems will be maintained in conformance with current
accepted principles and standards of the Governmental Accounting Standards Board (GASB),
Generally Accepted Accounting Principles (GAAP), and the Government Finance Officers Association
(GFOA). As a commitment to this policy, the Finance Department will periodically submit its
Comprehensive Annual Financial Report (CAFR) for the GFOA Certificate of Achievement for
Excellence in Financial Reporting.
2. The State Auditor's Office provides a standard account classification system through its Budgeting,
Accounting and Reporting System (BARS). The City will maintain its records on a basis consistent
with BARS and current BARS manuals will be maintained in the Finance Department.
3. The Finance Department will maintain financial systems to monitor expenditures, revenue, and
performance of all municipal programs on an ongoing basis. Regular monthly financial reports will
present a summary of financial activity for the period and the cumulative data for the budget year.
4. AD applicable standard governmental accounting practices will be used to maintain the City's financial
records, including the appropriate uses of accrual and modified accrual methods of accounting,
encumbrance accounting, current financial resources and economic resources focus for statement
presentation, and the proper classification of funds.
5. The Finance Department will maintain fixed asset and depreciation records for all capital assets
owned by the City. The threshold for capitalization of non- infrastructure assets is $7,500.
Under GASB Statement No. 34, infrastructure will be included as capital assets in the financial
reports. The City will develop and follow a methodology of maintaining infrastructure records,
including appropriate depreciation, under the guidelines of the statement.
6. The State Auditor's Office will annually perform a financial and compliance audit and issue an audit
report. Results of the annual audit will be provided to the City Council and public.
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In addition, the City has in place several other related policies and procedures. These include:
• Personnel Policies
• Travel Policies
• Investment Policy
• Cash Handling Policy
• Petty Cash Policy; and
• Purchasing Policy
Adopted November 15, 2011— Resolution #20 -11
Financial Management Policy Page 9