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HomeMy WebLinkAbout1986-159-10/07/1986-1987 BUDGET FINANCIAL MANAGEMENT POLICIES RESOLUTION 86-159 OF THE COUNCIL OF THE CITY OF FORT COLLINS ADOPTING THE FINANCIAL AND MANAGEMENT POLICIES RELATING TO THE 1987 FINAL BUDGET WHEREAS, the City Manager and City Council have reviewed various financial and management policies in conjunction with the annual budget process and five year plan; and WHEREAS, the City of Fort Collins is committed to sound financial planning and direction; and WHEREAS, these policies form the basis for various decisions affecting the 1987 final budget; and WHEREAS, City Council wishes to formally adopt these financial and management policies in conjunction with the adoption of the budget ending fiscal year 1987. NOW, THEREFORE, BE IT RESOLVED BY THE COUNCIL OF THE CITY OF FORT COLLINS that the 1987 Financial and Management Policies attached hereto as Exhibit "A", and incorporated herein by reference, be, and the same hereby are, adopted as the basis for the Resolution adopting the 1987 Budget for the City of Fort Collins. Passed and adopted at a regular meeting of the City Council held this 7th day of October, A.D. 1986. Mayor ATTEST: City Clerk EXHIBIT "A" 1987 FINANCIAL AND MANAGEMENT POLICIES TABLE OF CONTENTS Section 1. General Information Page 1. 1. Budget Submittal and Presentation. . . . . . . . . . . . . . E-3 1.2. Budget Process and Philosophy. . . . . . . . . . . . . . . . E-4 1.3. Categorization of Services . . . . . . . . . . . . . . . . . E-8 Section 2. Revenue Policies 2. 1. Revenue Review and Projection. . . . . . . . . . . . . . . . E-9 2.2. Sales & Use Tax Distribution . . . . . . . . . . . . . . . . E-9 2.3. General Fund Fees and Taxes. . . . . . . . . . . . . . . . . E-11 2.4. Revenue Sharing. . . . . . . . . . . . . . . . . . . . . . E-11 2.5. Private Contributions. . . . . . . . . . . . . . . . . . . . E-11 Section 3. Financial Administration 3. 1. Administrative Charges . . . . . . . . . . . . . . . . . . . E-12 3.2. Building Maintenance Costs . . . . . . . . . . . . . . . . . E-12 3.3. Energy . . . . . . . . . . . . . . . . . . . . . . . . . . . E-13 3.4. Lease/Purchase . . . . . . . . . . . . . . . . . . . . . . . E-13 3.5. Medical Insurance. . . . . . . . . . . . . . . . . . . . . E-14 3.6. Payment in Lieu of Taxes . . . . . . . . . . . . . . . . . . E-14 3.7. Pension Funds. . . . . . . . . . . . . . . . . . . . . . . . E-15 3.8. Performance Pay Plan . . . . . . . . . . . . . . . . . . . . E-16 3.9. Revenue Allocation Formula . . . . . . . . . . . . . . . . . E-16 3. 10. Rebate Programs. . . . . . . . . . . . . . . . . . . . . . . E-17 Section 4. Governmental and Proprietary Funds 4. 1. General Fund . . . . . . . . . . . . . . . . . . . . . . E-18 4.2. Enterprise Funds . . . . . . . . . . . . . . . . . . . . . E-18 4.3. Internal Service Funds . . . . . . . . . . . . . . . E-22 4.4. Special Revenue and Debt Service Funds . . . . . . . . . . . E-23 Section 5. Capital Improvement Funds 5. 1. Citizen Participation. . . . . . . . . . . . . . . . . . . E-26 5.2. Capital Improvement Policy . . . . . . . . . . . . . . . . . E-26 5.3. Categorization of Capital Projects . . . . . . . . . . . E-27 5.4. Prioritization of General City Capital . . . . . . . . . . . E-28 5.5. Funds Included in Capital Improvement Program. . . . . . . . E-29 Section 6. Reserve Policies 6.1. Policy Statement . . . . . . . . . . . . . . . . . . . . . . E-30 6.2. Types of Reserves. . . . . . . . . . . . . . . . . . E-30 6.3. Reserves Incorporated Into The 1987 Budget . . . . . . . . . E-31 Section 7. Investment Program 7.1. Objectives . . . . . . . . . . . . . . . . . . . . . . . . . E-33 7.2. Types of Investments . . . . . . . . . . . . . . . . . . . . E-33 7.3. Administration of Investment Program . . . . . . . . . . . . E-34 Section 8. Debt Policy 8.1. Conditions for Using Debt. . . . . . . . . . . . . . . . . . E-35 8.2. Sound Financing of Debt. . . . . . . . . . . . . . . . . . . E-35 8.3. Financing Methods. . . . . . . . . . . . . . . . . . . . . . E-35 GENERAL 1.1. BUDGET SUBMITTAL AND PRESENTATION (a) On or before the first Monday in September of each year, the City Manager shall submit to the City Council a proposed budget for the ensuing budget year with an explanatory message. The proposed budget shall provide a complete financial plan for each fund of the City. It shall also include appropriate financial statements for each type of fund showing comparative figures for the last completed fiscal year, comparative figures for the current year, and the City Manager's recommendation for the ensuing year. The budget estimates are open to the public for inspection and copy. Within ten days City Council sets times for public hearings, at which time the public may comment upon the proposed budget. Before the last day of October of each year, the Council shall adopt the budget for the ensuing fiscal year. (b) The City of Fort Collins is committed to presenting a sound financial plan for operations and capital improvements. To this end, the City utilizes conservative revenue forecasts and: 1. Prepares separate five-year financial plans for operations and capital improvements ; 2. Allows staff to manage the operating and capital budgets , with City Council deciding allocations in both ; 3. Adopts financial and management policies which establish guidelines for five-year financial plans ; 4. Establishes target budgets yearly for all funds based upon adopted policies ; 5. Appropriates the next year 's annual budget in accordance with City Charter; 6. Adjusts the annual budget to reflect changes in the local economy, changes in priorities, and receipt of unbudgeted revenues. 3 7. Organizes the budget so that revenues are related to expenditures as much as possible; 8. Provides department managers with immediate access to revenue and expenditure information for controlling their annual expenditures against appropriations ; 9. Utilizes a performance measurement system for all activities in the City ; 10. Evaluates recommendations which have a budget impact in light of annual appropriations and five-year financial plans. 1.2. BUDGET PROCESS AND PHILOSOPHY (a) Charter Requirements The City Charter requires a budget to be adopted for the ensuing fiscal year "before the last day of October of each year." A single appropriation is presented to Council at the first meeting in October of each year, containing the appropriations for all City funds for the ensuing year. (b) Basis of Accounting The accounts of the City are organized on the basis of funds and account groups, each of which is considered a separate accounting entity. The operations of each fund are accounted for with a separate set of self-balancing accounts that comprise its assets, liabilities, fund equity, revenues, and expenditures or expenses. In Governmental Funds (General Fund, Special Revenue and Debt Service Funds, and Capital Projects Funds), the modified accrual basis of accounting is used. Revenues are recognized in the accounting period in which they become available and measurable. Expenditures are recognized in the accounting period in which the liability is incurred. In Proprietary Funds (Enterprise Funds and Internal Service Funds ), the accrual basis of accounting is used. Revenues are recognized in the accounting period in which they are earned and become measurable. Expenses are recognized in the accounting period incurred. 4 Although classified as Special Revenue Funds for budgetary purposes, the City's three Pension Funds are classified as Trust and Agency Funds for accounting purposes. Trust and Agency Funds are used to account for assets held by the City in a trustee capacity, or as an agent for others . Revenues and expenditures in these funds are recognized on the basis consistent with the fund's accounting measurement objective. For Pension Funds, the accrual method of accounting is used. (c) Adoption Process The annual budget process is based upon Charter requirements and City Council adopted financial and management policies. In March, departments develop 5-year revenue projections and submit them to the Budget and Research Office, which develops target budgets for each department, based upon projected available resources. Departments begin their budget development in April , based upon targets and a Budget Manual compiled by Budget and Research. Budget proposals are turned into Budget and Research in May, along with policy analyses relating to matters involving policy decisions that must be made by Council prior to development of the Recommended Budget. All funds are expected to stay within their targets. Requests for funds above target amounts must be submitted in the form of Supplemental Requests. These requests are reviewed by the City Manager, and those having the greatest merit are incorporated into the Recommended Budget, if adequate resources are available. Each department meets with the City Manager to justify its budget submittal and Supplemental Requests . In June, the Budget and Research Office prepares a list of policy issues for Council , containing summary information on the upcoming budget and policy analyses for review. This memo forms the basis for discussion at two council worksessions , which provide staff with direction in developing the Recommended Budget. The Recommended Budget is submitted to Council in late August and is made available to the public at the same time. During September, two additional council worksessions are held ; public input is solicited at two Public Hearings, and at Community Meetings held at various locations throughout the City. The budget for the upcoming year is adopted in October per Charter requirements , and a final adopted budget document is then printed. 5 (d) Changes to the Adopted Budget 1. Budget Increases Funds are expected to confine spending to amounts appropriated during the Budget process . In certain cases , however , appropriations may be increased during the budget year in the following circumstances: • Carryover Encumbrances - If a department has open purchase orders at year end, related appropriations are encumbered and carried over into the next year to cover the actual expense when it occurs. • Unanticipated Revenue - If a fund receives revenue during the year from a source that was not anticipated or projected in the Budget, such as a grant or a bond issue , such revenue may be appropriated by Council for expenditure in the year received. • Prior Year Reserves - In cases where a fund's reserves are greater than required by policies, Supplemental Requests may be funded, with Council appropriating amounts from reserves to fund items which were not included in the adopted Budget. Council may also appropriate reserves in case of emergency or unusual circumstances, if it determines that such appropriations are in the best interests of the City. 2. Budget Decreases When economic developments dictate, budgets may be decreased during the year to levels below adopted appropriations. As part of the budget process , departments are required to submit Cost Curtailments , detailing , in order of preference , which appropriations they would relinquish should such action become necessary. If this action becomes necessary in the opinion of the City Manager, Budget and Research moves these appropriations to a line item called "Frozen Appropriations." While this does not lower the appropriations within a fund, it prevents them from being spent. If the economic situation should later change, the appropriations may be returned to other line items for expenditure. 6 (e) Level of Control and Budget Transfers Control of expenditures is exercised at the fund level . Fund managers are responsible for all expenditures made against appropriations within their fund, and can allocate available resources as they deem appropriate. There are two general types of budget transfers: 1. Within Fund - This is a transfer between line items and/or departments within a fund, and requires approval of the fund manager. 2. Between Funds - This type of transfer requires the Recommendation of the City Manager and formal action by the City Council . In order to provide City Council with information and control over capital improvements taking place within the City, Council approval is also required to transfer appropriations between Capital Projects. This is normally done in cases where a project is completed under budget and Council wishes to use the unused appropriations to enlarge the scope of another project. (f) Lapsing of Appropriations Per the City Charter, any appropriations which are unspent at the end of the year lapse into fund balance, where they cannot be spent unless appropriated by Council with the following exceptions: • Capital Projects - Appropriations for Capital Projects do not lapse until the project is completed and closed out. • Grant Funds - Appropriations funded by federal or state grants do not lapse until the grant expires, or the project for which the grant was received is completed and closed out. 7 1.3. CATEGORIZATION OF CITY SERVICES In 1983, the City Council reviewed and categorized all City services in order to set priorities for allocating available money. These categories are: Basic or Core Services - services that are best performed at the local level and are most closely linked to protecting the health and safety of citizens. Legally mandated services or commitments are also included in this category. Maintenance of Effort Services - services which the City has traditionally provided or which reflect a major capital investment requiring an expenditure of funds to maintain. Quality of Life - activities which are provided for more specialized groups and enhance the desirability of Fort Collins as a place to live. These categories were applied to City services in the following manner: Basic or Core Services Quality of Life Debt Payments Community Services Fire Golf Light & Power Lincoln Center Police Museum Storm Drainage Open Space Streets Recreation Water and Sewer Maintenance of Effort Services Cemeteries Engineering Facilities General Administrative Services Internal Service Activities Library Natural Resources Park Maintenance Street Lighting Transfort 8 REVENUE POLICIES 2.1. REVENUE REVIEW AND PROJECTION The City reviews estimated revenue and fee schedules as part of the budget process. Estimated revenue is conservatively projected for five years and updated annually. Proposed rate increases are based upon: • fee policies applicable to each fund or activity; • the related cost of the service provided; the impact of inflation in the provision of services; • equity of comparable fees. The City of Fort Collins maintains a diversified and stable revenue system to shelter the City from short-run fluctuations in any one revenue source. 2.2. SALES AND USE TAX DISTRIBUTION In 1987, the City's Sales & Use Tax totals 2.75 cents, developed as follows: 1968 - General City uses 1.00 198U - General City uses 1.00 1982 - General City uses .25 1984 - "Necessary" General City Capital Projects .25* 1985 - Pool/Ice Rink Facility .25* 2.75 *Excluding sales of grocery food. 9 Revenue generated by the Sales and Use Tax will be distributed, based on adopted budgets, in the following manner: TAX ON ALL SALES & USES: 2.25 cents General Fund 80% Fixed Dollar Amounts Debt Service Fund Ft. Collins/Loveland Airport Authority Sales & Use Tax Reserves Capital Projects Fund Sales & Use Tax receipts dedicated to General City Essential Capital are determined after coverage of General Fund and Fixed Dollar Amounts 20% TOTAL 100% TAX ON ALL SALES & USES-EXCLUDING GROCERY FOOD: 0.50 cents Capital Projects Fund General City Capital Projects (necessary) 50% Debt Service Fund Pool/Ice Rink Facility 50% TOTAL 100% Sales & Use Tax Distribution has been altered in 1987 to reflect a concern that the General Fund be sheltered from fluctuations in the local and regional economy. The Sales & Use Tax is the largest revenue source in the General Fund. By allocating 80% of all Sales & Use Tax revenues to the General Fund, the City will be better able to predict revenues and expenditures in the General Fund. The remaining 20% of Sales & Use Tax receipts are divided among the Capital Projects Fund and several debt obligations. Since the City is legally committed to honoring its Debt Service, Sales & Use Tax Reserves, and Airport Authority payments the effect of this policy revision is to limit the amount of Sales & Use Tax receipts which can be dedicated to the Capital Projects Fund. 10 Actual Sales & Use Tax revenue generated by the 2.25 cent tax in excess of budgeted amounts will be transferred to the General Fund. Actual Sales & Use Tax revenue generated by the 0.25 cent tax for General City Necessary Capital Projects will be transferred to, and be retained in, the Capital Projects Fund until all authorized projects have been completed. Upon completion of the designated projects, excess revenue will be transferred to the General Fund to reduce Property Taxes. Actual Sales & Use Tax revenue generated by the 0.25 cent tax for the Pool/Ice Rink facility will be transferred to, and be retained in, the Debt Service Fund until the $9,000,000 of Bond Anticipation Notes (BANS) issued in 1985 to construct this facility have been retired. Upon retirement of the BANS, excess revenue will be transferred to the General Fund for operation of the facility. 2.3. GENERAL FUND FEES AND TAXES The City of Fort Collins imposes a number of miscellaneous licenses, fees and taxes, which are reviewed annually in conjunction with the Revenue Policy, to determine rates and fee schedules for the ensuing year. 2.4. REVENUE SHARING In order to avoid dependency upon federal funds, which may not continue, for basic or core service areas, the City has utilized Revenue Sharing funds for one-time and/or capital costs. The exception to this policy has been the use of funds for social service programs on an on-going basis (i .e. Social Service Agency contracts, Rebate Programs, and the Volunteer Program) . Due to uncertainties surrounding the future of Federal Revenue Sharing funds, the City has not budgeted for Revenue Sharing past 1987. 2.5 PRIVATE CONTRIBUTIONS The City encourages the solicitation of private contributions for "Quality of Life Services" . "Quality of Life" programs represent an "extra" that the City has been able to provide to residents. In times of revenue constraints the City may not be able to provide the same level of service without additional support. Therefore, efforts should be made to secure private contributions in support of these programs and services, as these contributions are an integral part of their successful operation. 11 FINANCIAL ADMINISTRATION 3.1. ADMINISTRATIVE CHARGES The General Fund provides services to all funds, requiring a formula for the allocation of Administrative Charges. The formula utilized in the allocation is as follows: 9 50% of the cost is allocated based on the ratio of each fund's budget to the total City budget (excluding Light & Power's Purchased Power) and; • 50% of the cost is allocated based on a ratio of the number of City employees in each fund to the total number of City employees. This policy is applied to all funds in 1987, with the exception of those funds which are subsidized by the General Fund. 3.2. BUILDING MAINTENANCE COSTS As part of the 1985 Budget process, Council considered the City's policy relating to the maintenance of City buildings. Such maintenance has been classified into three categories: 1. General 2. Renovation A. Minor B. Major 3. Replacement Priorities associated with the categories have also been established: 1. Life, Health, and Safety 2. Repair 3. Protecting Capital Investment 4. Quality/Enhancement 12 3.3. ENERGY The City recognizes a responsibility in energy management. The City's roles are: • a consumer of energy in municipal facilities; • a corporate agency of the community to facilitate energy objectives of the community; • a supplier of energy and energy services. The City of Fort Collins strives to maintain an energy consciousness within the community. As a consumer of energy the City has undertaken several exemplary projects at municipal facilities. As an advocate of energy conservation and a supplier of energy services, the City has initiated an aggressive outreach effort to provide energy education and facilitate the expanded use of conservation and renewable energy. 3.4. LEASE/PURCHASE The City of Fort Collins has used lease/purchase financing for the provision of new and replacement equipment, vehicles and rolling stock in order to ensure the timely replacement of equipment and vehicles. Other advantages that lease/purchase financing can offer over the traditional cash method of financing are: Decreasing the impact of inflation on the purchase of new and replacement equipment. • Reducing the initial impact of the cost to user departments by enabling acquisition costs to be spread over the useful life of the equipment. Safeguarding the opportunity to use cash assets to earn higher interest than the interest cost of lease/purchasing. Finally, it should be noted that the City is able to discontinue the equipment leases at its discretion so that future City Councils will have the option to continue or discontinue the policy of lease/purchasing City equipment. 13 3.5. MEDICAL INSURANCE The City of Fort Collins entered into a partially self-funded medical insurance program in October, 1981. This program allowed the City to cut out profit paid to a private carrier, invest available money (at higher rates) , and maintain better cash flow. The initial savings were as high as expected and the program continues to provide a cost effective and very desirable employee fringe benefit. The partially self-funded insurance program is enhanced by a consortium of cities to collectively bid administrative services, stop-loss insurance for unexpected emergencies, and life and accidental death and dismemberment insurance, resulting in lower rates. 3.6. PAYMENT IN LIEU OF TAXES (PILOT) In accordance with the City Charter regarding municipality rates and finances, the water, sewer, and electric utilities "pay into the General Fund in lieu of taxes an amount at least equivalent to City taxes and franchise permits as if the utility were privately owned." The PILOT rate, as established by Council , for the Water, Sewer, and Light and Power Utilities is 5% of operating revenues per year for each utility. The 5% PILOT rate accomplishes the following objectives: Establishes a rate approximately one and one-half (1.5) times the rate that would be charged if the utilities were privately owned, and; • Provides a more consistent rate for all utilities. In 1987, the Light and Power Utility will undertake responsibility for Municipal Street Lighting. This function has traditionally been funded through the General Fund. By undertaking Municipal Street Lighting, the PILOT which the Light and Power Utility pays into the General Fund will not be reduced. However, the transfer of this function does not affect customer rates, since it is being funded out of Light and Power Fund reserves. 14 3.7. PENSION FUNDS The City of Fort Collins contributes to five pension plans, including: Police Fire General Employee Retirement State Pension - Police State Pension - Fire The Police, Fire, and General Employee Retirement Plans are administered by the City of Fort Collins. The rate of contribution for the City administered plans is based upon an annual actuarial analysis for the normal cost and unfunded liability of the number of employees participating in each pension plan. The City's current pension consists of the following provisions: 0 The City will maintain contribution rates at a level sufficient to meet all current normal costs of each pension plan ; 0 Any unfunded liability incurred by individual pension funds will be amortized over a period not to exceed twenty years ; 0 A thrift plan for City employees is an adjunct to the general employee retirement plan, to maintain comparability with benefits provided by other Front Range communities. Employee participation in this plan is optional . The 1987 Budget incorporates the following rate requirements to continue this policy: General Employee Normal Costs Police Fire Employee Thrift Plan City Contribution 8% 8% 3.553% 3% Employee Contribution 8% 8% -- 3% TOTAL 16% 16% 3. 553% 6% General Unfunded Liability Police Fire Employee Total City Contribution $ 0 $ 84,000 -0- $ 84,000 15 3.8. PERFORMANCE PAY PLAN The City's goal as an employer is to attract and keep quality employees. To help accomplish this goal , the City has established a performance pay plan. The performance pay philosophy has been maintained for five general reasons: 1. to attract quality employees; 2. to retain quality employees; 3. to operate the City with fewer employees than comparable jurisdictions; 4. to provide an incentive and reward for productivity, and; 5. to recognize cost savings generated by productive employees. Every effort will be made to provide the economic adjustment necessary for the performance pay plan by January of each year. If this is not financially feasible, as much as can be provided (given the priority demands on available resources) will be given in January. In the area of compensation, the City initiated, in 1986, a three-year program to address the issue of comparable worth, which is concerned with compensation of individuals based upon their value to the organization. 3.9. POUDRE FIRE AUTHORITY - REVENUE ALLOCATION FORMULA (a) In December 1981, the City entered into an agreement with the Poudre Fire Protection District, creating the Poudre Fire Authority (PFA), which provides fire protection services to the City. In 1983, Council adopted the following Revenue Allocation Formula as the City's contribution to the PFA for the years 1983-1987: Annual Operations and Maintenance Budget The City will contribute to the Poudre Fire Authority a sum equal to .303 cents of existing Sales and Use Tax and 6 mills of existing property tax from the General Fund to provide for the annual operation and maintenance of Poudre Fire Authority. (These funds are in addition to funds contributed by Poudre Valley Fire Protection District. ) 16 (b) The City revised its property tax mill levy in 1984 and 1985, and, accordingly, the 1987 Budget includes an allocation of property tax to the PFA, maintaining the relative proportion of property tax mills as allocated to the PFA in Resolution 83-7. In accordance with Resolution 85-184 the City currently contributes 6.968 mills of existing property tax to PFA. The City increased the Sales and Use Tax rate by one-quarter cent on July 1, 1984 for "necessary" General City Capital projects and by another one-quarter cent on January 1, 1985 for a Pool/Ice Rink Facility. Since the revenues generated by these increases are dedicated for the specific purposes intended, the 1987 budget includes an allocation of 0.303 of 1 cent of the City's 2.25 cents Sales and Use Tax applicable to all taxable sales and uses to the PFA, in accordance with Resolution 83-7. Since the Revenue Allocation Formula represents the City's contribution to the PFA for its operation and maintenance costs only, the City's 1987-1991 Capital Improvement Program provides for additional contributions to the PFA for capital expenditures, in the Capital Projects Fund. 3.10. REBATE PROGRAMS The City recognizes that certain segments of its population, specifically the handicapped and senior citizens on fixed incomes, may be unable to keep pace with increasing taxes and utility costs. In an effort to partially offset the cost of Property Taxes, utility billings and Sales Taxes on these segments of its population, the City has established several rebate programs , as follows: Property Tax and Utility Charge Rebate Program These programs provide financial assistance to handicapped residents and senior citizens, in the form of an annual rebate on Property Tax and Utility charges, who qualify under residency and income guidelines. Sales Tax Rebate on Food Program The City recognized the regressiveness of the Sales Tax on food and specifically excluded the sale of grocery food when enacting a voter-approved 0.25 cent Sales and Use Tax increase for Capital Projects, on July 1, 1984 and another 0.25 cent January 1, 1985, for a Pool/Ice Rink Facility. In addition to these measures, the City implemented a Sales Tax Rebate on Food Program, with the 1985 Budget. This program provides for an annual rebate to members of qualifying households on the basis of residency and income guidelines. 17 GOVERNMENTAL AND PROPRIETARY FUNDS 4.1. GENERAL FUND The General Fund is the largest and most diverse of the City's operating funds. It includes all resources not legally restricted to a specific use. The major source of revenue to the General Fund is the Sales & Use Tax, which accounts for approximately 55% of the fund revenue. Local Property Tax and the Lodging Tax are also included in the General Fund as are revenues derived from fees for services and materials, licenses, permits , and fines. 4.2. ENTERPRISE FUNDS The City currently has six Enterprise Funds. These include Cemeteries, Golf, Light & Power, Sewer, Storm Drainage, and Water. The Enterprise Fund classification has been used to account for various services for which there exists a significant potential for financing through user charges. In many of these funds, a subsidy from the General Fund has been necessary to cover operating expenses. Historically, services were accounted for in an Enterprise Fund only if they were financed more than 50% by user charges. In the 1987 Budget, all Enterprise Funds, with the exception of Cemeteries, will recover 100% of their costs through 1991. The long term goal of all enterprise accounts is self-sufficiency. Toward this end, those funds which are not presently recovering at least 75% of their costs shall incrementally adjust their rate structures to achieve a positive income position. Those operations which cannot achieve a positive income position within a five year timeframe may be accounted for as subsidized operations and not as Enterprise Funds. (a) Light & Power Utility The financial policies of the Light & Power Utility are administered in accordance with the City Charter. The 1987 Budget/five year plan has been prepared in compliance with the following: 1. Fundamental Purpose '$To efficiently manage the City of Fort Collins' energy systems and services with sensitivity to the environment, the community, and conservation of resources. To enhance the quality of life for the consumers and the community through provision of sufficient electrical energy, reliably and economically. 18 2. Electric Rates Electric rates will be based upon the cost of service approach to reflect full distribution of costs to appropriate rate classes in order to effect equitable sharing of costs. Rates shall be established and maintained at a level sufficient: • To pay the full cost of operation and maintain the electric utility in good repair and working order; To provide an operating reserve equal to 8% of budgeted operating expenditures, excluding the cost of purchased power; • To provide a future capital improvements reserve in an amount which shall , as nearly as possible, be equal to the average annual cost (excluding debt financing) of the approved five-year capital improvement plan, considering any changes which, from time to time, may be made in such plan provided, however, that the amount in such reserve shall be permitted to vary from year to year if approved by the Council during the annual budget process for the purposes of achieving stability and predictability in rates and to minimize changes adverse to electric consumers; To pay into the General Fund of the City of Fort Collins in lieu of taxes and franchise permits a percentage of revenue from the sale of electric energy equivalent to 5% of operating revenues. 3. Excess Retained Earnings After retained earnings are reserved as specified above, any excess retained earnings shall be added to the future capital improvements reserve. 4. Operating Records The Light & Power Utility will maintain a standard system of accounting which shall , at all times, correctly reflect all financial operations of the system and keep other such records and data as are generally used by the electric utility industry. 19 The accounts of the Light & Power Utility shall be kept separate and distinct from all other accounts of the City and shall contain proportionate charges for all services performed by other departments as well as proportionate credits for all services rendered to other departments. (b) Water & Sewer Utilities Formally adopted financial policies are an important factor in planning the financial operations of the Water and Sewer utilities. Policy statements have been developed and incorporated into the five year financial plan as follows: 1. Net Income The net income of the Water and Sewer Utilities shall be at least equal to the annual cost of the following: • Principal reductions of outstanding bonds; • Loan requirements to Federal or State agencies, and; • Annual operating reserve increases. 2. Rate Requirements Utility rates shall be set at a level to provide for the net income requirement in each fiscal year. Levelized rate increases are preferred and, when possible, should be achieved through levelized expenditures. 3. Reserves The following reserves shall be established and maintained in the applicable utility: • Operating Reserve - at least equal to 2% of the projec a annua operating revenue. • Plant Investment Fee Reserve - equal to the annual fees less annua cos a located to System Expansions. • Capital Reserve - equal to the amount of bond procee s ava ale at the end of one fiscal year to be expended in the next fiscal year. • Debt Reserve - equal to the amount required by n ivi ua and ordinance. 20 4. Capital Cost Financing Annual capital cost shall be identified as one of three types, and financed as noted: • Normal replacement of the existing system. Financed on a Pay-As-You-Go basis from a reserve for depreciation funded from current rates. • System improvements that benefit the existing and future population. Debt financed over the life of the improvement and the annual debt service shall be funded from current rates. • System expansions that benefit future populations. Debt financed over the life of the expansion, and annual debt service shall be funded from a combination of Plant Investment Fees and Contributions in Aid of Construction. Federal and/or State grants may be utilized to fund portions of, or al 1 , capital costs. (c) Storm Drainage Fund The primary purpose of the Storm Drainage Fund is to meet the public need for effective stormwater management, including flood control , capital improvements and the operation and maintenance of drainage facilities. 1. Operation and Maintenance Requirements Utility rates will be set at a level to provide for the operation and maintenance requirement for each fiscal year. The rate is structured on a base rate of $.000384 per square foot per month and on a rate factor based on the category of development. 2. Capital Project Needs A master plan has been developed for each basin to identify drainage needs, set fees, and determine capital improvement requirements. In the effort to balance storm drainage risk and liability, a 20-year storm drainage capital project has been developed that relates to the system requirements of each basin where a positive cost/benefit ratio exists. To finance this capital program, a one-time basin fee is collected with new development and a monthly capital fee from property owners. 21 3. Capital Cost Financing The financing of capital improvements will be accomplished through the following: a one-time basin fee that is collected with new development; monthly capital fee collected from property owners; • bond issues that will be financed over the life of the improvement. The annual debt service will be provided from the existing monthly capital fees. 4. Reserves The following reserves have been established: Capital Reserve - equal to the amount of bond proceeds, month y capital fees, and one-time new development fees available at the end of one fiscal year to be expended in the next fiscal year; Operating Revenue Reserve - equal to 2% of the projectea annual operating revenue; • Debt Reserve - equal to the amount required by e in v ual bond ordinance. 4.3. INTERNAL SERVICE FUNDS Internal Service Funds are used for the operation of agencies which provide goods and/or services to other agencies within the City on a cost-reimbursement basis . These funds cover expenditures through the imposition of user charges. 22 4.4. SPECIAL REVENUE AND DEBT SERVICE FUNDS Special Revenue Funds are used to account for the proceeds of revenue sources which are restricted by law or administrative action to expenditures for specified purposes. Special Revenue Funds include Cultural Services & Facilities, Recreation, Transportation, and the City's various Pension funds. The Debt Service Fund is used for the payment of principal and interest on long-term debts. The major source of revenue in the Debt Service Fund is the Sales & Use Tax. (a) Cultural Services & Facilities Fee Policy The Cultural Services & Facilities Fund shall budget to recover at least 40% of its total cost in revenue generated through implementing the following policy: 1. Total revenue from fees and charges shall cover a minimum of 55% of Lincoln Center Operation & Maintenance and Performing & Visual Arts Programming Budgets. This includes revenues generated at the Lincoln Center from rentals, equipment, concessions and other miscellaneous sources and all total direct revenues from the Performing & Visual Arts Programming. A transfer from the General Fund will make up the difference between total revenue and expenditures. 2. The Cultural Services & Facilities Administration and Museum budgets provide minimal financial support. These programs are funded primarily by a transfer from the General Fund. 3. Major capital improvements and renovations will be financed through sources other than Cultural Services and Facilities Fund. 4. Solicitation of funds through donations, fund-raising events , and non-traditional sources shall be encouraged by the City staff, Lincoln Center League, the Cultural Resources Board and the City Council . Funding collected for any special purpose shall be earmarked for that purpose and those funds will be processed through the Fort Collins Foundation. 23 (b) Recreation Fund Fee Policy The following fee policy for the Recreation Fund continues in effect. 1. The Recreation Division shall recover a minimum of 50% of its total costs in revenue generated through fees and charges. 2. Total direct revenue from all Recreation programs shall not fall below a 100% recovery of total direct costs. 3. Categories have been created for the Recreation Programs in order to evaluate which programs must cover total or partial expenditures. These categories are: A. Total Support 1. Sports 2. Dance and Fitness B. Partial Support 1. Aquatics 2. Outdoor Recreation 3. Arts and Crafts 4. Special Interests C. Minimal Support 1. Senior Citizens 2. Special Events 3. Therapeutics 4. Youth Centers 5. Northside Recreation Total revenue from fees and charges shall cover a minimum of 80% of "Total" and "Partial " support program costs. A transfer from the General Fund will comprise the difference between actual revenues and expenditures in these programs as well as programs requiring "minimal support" . 4. Revenue generated from rentals, concessions, and other miscellaneous sources shall be considered an equal priority with class registrations when establishing fees and charges. 5. The Recreation Division shall provide designated programs for senior citizens and developmentally disabled persons at 1/2 the established fee, and to low-income citizens at 1/3 the established fee. 6. The Recreation Division shall charge rental for rooms, pool time, gym, ball field, and special equipment, as specified in written policies. 24 7. An admission fee shall be charged at the Northside Community Center for use of the weight room, locker room, and gym, during drop-in hours. 8. Solicitation of funds through donations, fund raising events, non-traditional sources, and various other needs shall be encouraged by the Parks and Recreation Advisory Board and City Council . Funding collected for any special purpose shall be earmarked for that purpose, and the utilization of foundations for the furtherance of this goal shall likewise be encouraged. 25 CAPITAL IMPROVEMENT FUNDS 5.1. CITIZEN PARTICIPATION The development of the Capital Improvement Program was significantly modified in the 1984, 1985 and 1986 Budgets by Resolution 83-86. By this Resolution, Council stated its intention "to develop and implement a program for soliciting citizen involvement and participation in formulating a Capital Improvements Program and the funding thereof." This was accomplished with the adoption of Resolution 83-94, creating a Citizens' Advisory Committee on Project RECAP (REevaluation of CApital Projects) . Council directed the Citizens' Advisory Committee on Project RECAP to make recommendations on the capital improvement needs of the community. The Project RECAP Committee was instrumental in the determination of the General City Capital projects to be accomplished in the 1985-1989 Capital Improvement Program. In addition, at the City's May 1, 1984 election, the residents of Fort Collins approved the imposition of a 0.25 cent increase in the Sales & Use Tax rate (excluding grocery food), effective for a five year period commencing July 1, 1984, to finance "necessary" General City Capital projects, as well as a 0.25 cent increase in the Sales and Use Tax rate (excluding grocery food) , effective for a five year period commencing January 1, 1985, to finance the construction of a Pool/Ice Rink Facility in the City. 5.2. CAPITAL IMPROVEMENT POLICY With the above-mentioned modifications to the process of identifying the City's capital needs, the City will continue to operate under its existing Capital Improvement Policy: The City will develop a multi-year plan for capital improvements and update it annually; The City will make all capital improvements in accordance with the adopted Capital Improvement Program and the Capital Project Management Control System; 26 • The City will identify estimated costs and funding sources for each capital project requested before it is submitted to City Council ; • The City will use intergovernmental assistance to finance only those capital improvements that are consistent with the Capital Improvement Plan and City priorities and whose operating and maintenance costs have been included in the operating budget forecasts. 5.3. CATEGORIZATION OF CAPITAL PROJECTS Capital improvements generally fall into several different categories. Project categories, along with their funding sources, include; (a) Replacement - capital expenditures relating to normal replacement o w" orn or obsolete capital equipment or facilities. In general , capital expenditures relating to replacement of equipment or facilities will be financed on a pay-as-you-go basis, with debt financing considered only when appropriate. (b) Expansion - capital expenditures relating to the construction of new or expanded facilities necessitated by growth. Capital expenditures relating to expansion will be financed primarily on a pay-as-you-go basis, but when the City's share of new improvements can be determined to benefit the overall population in the future, debt financing may be appropriate. (c) Unusual - capital expenditures for improvements that enhance the qua i y of life in Fort Collins and are consistent with the City's goals, but cannot be categorized as essential for the provision of basic or maintenance of effort services. The policy relating to unusual capital expenditures directs the City to look to the ultimate beneficiary of each capital improvement in order to determine the source of funding. 27 5.4. PRIORITIZATION OF GENERAL CITY CAPITAL PROJECTS With the incorporation of the recommendations of the Citizens' Advisory Committee on Project RECAP into the 1984, 1985 and 1986 Budget processes, a new mechanism for categorizing General City Capital projects has been developed in order to determine priorities for the allocation of available funds to projects. General City Capital needs are first identified as relating to one of the Council-adopted "categories of service" , as detailed in Policy 1.3; I . Basic (or Core) II . Maintenance of Effort III . Quality of Life Within each category, projects are then ranked as: 9 Essential • Necessary • Desirable The following matrix demonstrates the resulting order of priority in terms of access to available funds: MAINTENANCE QUALITY BASIC SERVICES OF EFFORT OF LIFE -------------- ----------- --------- Essential (1) Essential (2) Essential (3) Necessary (4) Necessary (5) Necessary (6) Desirable (7) Desirable (8) Desirable (9) 28 5.5. FUNDS INCLUDED IN CAPITAL IMPROVEMENT PROGRAM The City's Capital Improvement Program includes the Capital Projects Fund, the Conservation Trust Fund, and the Parkland Fund. (a) Capital Projects Fund General City Capital improvements (General Services, Parks & Recreation, Streets & Traffic, Police, and Poudre Fire Authority) are financed by transfers from the appropriate financing fund. These funds include; Sales & Use Tax, General , and Transportation. They can also be financed through bond proceeds, and/or grant funds deposited directly in the Capital Projects Fund. In accordance with the 2.25 cent Sales Tax Distribution formula, adopted by City Council , a portion of Sales & Use Tax revenues is committed to the Capital Projects Fund for General City Essential Capital Projects. In addition, the proceeds of the two .25 cent Sales & Use Taxes are specifically dedicated to General City Necessary Capital Projects and a Pool/Ice Rink facility. Utilities (Sewer, Storm Drainage, and Water) capital projects are financed by transfers from the respective financing fund. Sources of funding in the financing funds are bond proceeds and specific fees. Light & Power Utility capital projects are included in the Light & Power fund and, thus, do not appear in the Capital Projects Fund. (b) Conservation Trust Fund The Conservation Trust Fund provides for the receipt and expenditure of revenue received from the Colorado State Lottery. The Lottery revenue finances capital projects which relate to the acquisition and development of open space and trails. (c) Parkland Fund The Parkland Fund provides for the development of neighborhood nd Fe is c s collected ected from adevelopers nced by a for each Parkland Fee. dwelling unit ae tabl fished within the City limits. The Parkland Fund includes funds for neighborhood park capital improvements, with associated operation and maintenance costs included in the operating budget. 29 RESERVE POLICIES 6.1. POLICY STATEMENT The accumulation of reserves protects the City from uncontrollable increases in expenditures or unforeseen reductions in revenues, or a combination of the two. It also allows for the prudent financing of capital construction and replacement projects. 6.2. TYPES OF RESERVES The City of Fort Collins maintains the following reserves in its governmental and proprietary funds: 0 General Fund Revenue Reserve - this reserve is held in the Genera and and is designed to be available for temporary financing of unforeseen needs of an emergency nature, and to permit orderly adjustment to revenue losses. The amount of money to be held in the General Contingency Reserve will not be less than 6% of the approved General Fund budget. 0 Operating Reserves - operating reserves are held in nterprise, Internal Service, and some Special Revenue Funds. There are two types of Operating Reserves: 1. An appropriated contingency which provides for unexpected or unanticipated expenditures during the years. It is typically budgeted at an amount equal to 2% of the annual operating budget by fund, but may be a fixed amount depending upon available funds. 2. Revenue reserve of working capital is established to provide for unforeseen revenue losses. If something happens to the economy, there is flexibility without worrying that current expenditures will exceed the total revenue available. The revenue reserve is calculated at an amount equal to 2% of projected annual operating revenue by fund. This revenue reserve is not appropriated as part of the annual budget, but may be utilized at the end of the fiscal year, if necessary. 30 • Capital Reserves - Capital reserves are established 15 or er to provide for normal replacement of existing capital plant and additional capital improvements financed on a pay-as-you-go basis . The amount of the reserve is determined by averaging the dollar value of capital needs as shown in the Capital Improvement Program. A second type of capital reserve is appropriated capital contingency, typically 5% of the amount annually appropriated for capital construction, which provides for the conceptual study and preliminary design of unanticipated capital improvements. Debt financed capital improvements are , by definition, financed by proceeds of bond issues and do not require capital reserves. NOTE: Because of the incorporation of Project RECAP recommendations into the 1987 Budget process, the reserves retained annually in the General City Capital Projects portion of the Capital Projects Fund for the years 1987-1991 are determined by the excess of resources over identified expenditures. Debt Reserves - Debt reserves are established to pro ec on olders from payment defaults. Adequate debt reserves are essential in maintaining good bond ratings and the marketability of bonds. The amount of debt reserves are established by bond ordinance in association with each bond issuance. 6.3. RESERVES INCORPORATED INTO THE 1987 BUDGET The City recognizes the need to provide adequate resources to maintain existing infrastructure and rolling stock at acceptable levels. For this reason, two new reserves have been incorporated into the 1987 Budget. These are: • Reserve for Buildings and Improvements - the City as en e a num er of CiTy---5-uildings and facilities which are in need of repair. Recognizing that a municipality's chief financial investment is in its infrastructure, an appropriated reserve for Buildings and Improvements has been built into the 1987 Budget. 31 • Reserve for Equipment Replacement - in 1985 and e City un er oo an ex ensive look at its equipment replacement needs in the near future. Based on recommendations which were developed, and needs which have been identified by Departments in the City, a reserve has been allocated which represents an annual percentage of the Equipment Replacement needs to be financed over the next five years. 32 INVESTMENT PROGRAM 7.1. OBJECTIVES The City's Investment Program has several objectives. Among those are: • to maximize the amount of cash available, both to meet the City's daily cash need and to increase the amount available for investment; • earn the maximum return on investment; • minimize risk to the investment principal . 7.2. TYPES OF INVESTMENTS The City of Fort Collins maintains several types of investments. Included among these are: • Interest bearing accounts or time certificates of deposit in State and/or national banks doing business in Colorado; • Obligations of the United States government including Treasury Bills, Treasury Notes, and Treasury Bonds; • Bonds or other interest bearing obligations of which the principal and interest are unconditionally guaranteed by the United States government. These include such issues as GNMA and FNMA bonds; • Debentures or similar obligations issued by a federal intermediate credit bank or by a bank for cooperatives; • Notes or bonds secured by mortgage or trust deed insured pursuant to Title II of the National Housing Act. 33 7.3. ADMINISTRATION OF INVESTMENT PROGRAM In accordance with Resolution 82-70, the Director of Finance is authorized and empowered to manage City monies including the purchase and sale of investments . The responsibilities of the Director of Finance in this area include the following: • to prepare a cash budget to determine cash needs and the availability of cash to invest; • to pool cash from various City funds to enhance investment capabilities , thereby maximizing investment income; to analyze market conditions of the various investment securities on a daily basis to determine the maximum yield obtainable; • to prepare investment assumptions as to market conditions, cash availability, and starting mix of investment securities, • to prepare investment strategies or actions to be taken based upon assumptions and actions to be taken in the event of an unexpected drop in cash flow or unexpected revenues; • to insure compliance with Resolution' 85- 134 regarding investments with the Republic of South Africa. 34 DEBT POLICY 8.1. CONDITIONS FOR USING DEBT The City of Fort Collins will use debt financing only when it is considered appropriate. The issuance of debt will be considered appropriate when the following conditions exist: • When non-continuous capital improvements are desired, and; • When it can be determined that future citizens will receive a benefit from the improvement. 8.2. SOUND FINANCING OF DEBT When the City of Fort Collins utilizes long-term debt financing, it will ensure that the debt is soundly financed by: • Conservatively projecting the revenue sources that will be utilized to pay the debt; • Financing the improvement over a period not greater than the useful life of the improvement; • Determining that the cost/benefit of the improvement, including interest cost, is positive. 8.3. FINANCING METHODS The City maintains the following policies in relation to the methods of financing used to issue debt: • Total general obligation debt will not exceed 10% of assessed valuation, in accordance with the City Charter; • Where possible, the City uses special assessment, revenue, or other self-supporting bonds instead of general obligation bonds; • Fort Collins maintains good communications with bond rating agencies about its financial condition. Annual budgets include debt service payments and reserve requirements for all debt currently outstanding for all proposed debt issues. 35