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HomeMy WebLinkAbout1991-138-10/15/1991-1992 ANNUAL BUDGET ADOPTING FINANCIAL POLICIES MANAGEMENT RESOLUTION 91-138 OF THE COUNCIL OF THE CITY OF FORT COLLINS ADOPTING THE FINANCIAL AND MANAGEMENT POLICIES RELATING TO THE 1992 ANNUAL 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 financial plan; and WHEREAS, the City of Fort Collins is committed to sound financial planning; and WHEREAS, these policies establish guidelines for the various decisions affecting the 1992 Annual Budget and long-range financial plans; and WHEREAS, the City Council wishes to formally adopt these financial and management policies in conjunction with the adoption of the budget for the fiscal year beginning January 1 , 1992 and ending December 31 , 1992 . NOW, THEREFORE, BE IT RESOLVED BY THE COUNCIL OF THE CITY OF FORT COLLINS, that the 1992 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 Ordinance adopting the 1992 Annual Budget for the City of Fort Collins. Passed and adopted at a regular meeting of the City Council held this 15th day of October, A.D. 1991 . mayor ATTEST:: City Clerk FINANCIAL AND MANAGEMENT POLICIES TABLE OF CONTENTS PAGE Section 1 General 1 .1 . Budget Submittal and Presentation . . . . . . . . . . . . . . . . . . . 1 1 .2. Budget Process and Philosophy . . . . . . . . . . . . . . . . . . . . . . . 2 Section 2 Revenue Policies 2.1 . Revenue Review and Projection . . . . . . . . . . . . . . . . . . . . . . . 6 2.2. Sales and Use Tax Distribution . . . . . . . . . . . . . . . . . . . . . . 6 2.3. Private Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Section 3 Financial Administration 3.1 . Administrative Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 3.2. Payment in Lieu of Taxes (PILOT) . . . . . . . . . . . . . . . . . . . . . 9 3.3. Lease Purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 3.4. Total Compensation Plan . . . . . . . . . . . . . . . . . . . . . . . . . . 10 3.5. Building Maintenance Costs . . . . . . . . . . . . . . . . . . . . . . . . 12 3.6. Poudre Fire Authority-Revenue Allocation Formula . . . . . . . . . 12 3.7. Rebate Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Section 4 Governmental and Proprietary Funds 4.1 . General Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 4.2. Enterprise Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 4.3. Internal Service Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 4.4. Special Revenue & Debt Service Funds . . . . . . . . . . . . . . . . . 19 Section 5 Reserve Policies 5.1 . Policy Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 5.2. Types of Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Section 6 Capital Improvement Funds 6.1 . Citizen Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 6.2. Capital Improvement Policy . . . . . . . . . . . . . . . . . . . . . . . . . 26 6.3. Capital Improvement Program . . . . . . . . . . . . . . . . . . . . . . . 27 Section 7 Debt Policies 7.1 . Policy Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 7.2. Authorization of Municipal Burrowing . . . . . . . . . . . . . . . . . . 29 7.3. Conditions for Using De . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 7.4. Debt Indicators & Target Levels . . . . . . . . . . . . . . . . . . . . . . 31 7.5. Sound Financing of Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 7.6. Financing Methods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Section 8 Cash Management and Investment Policy 8.1 . Policy Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 8.2. Scope . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 8.3. Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 8.4. Delegation of Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 8.5. Prudence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 8.6. Eligible Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 8.7. Reporting and Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 8.8. Ethics and Conflicts of Interest . . . . . . . . . . . . . . . . . . . . . . 36 8.9. Policy Revisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 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 November 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 the City Charter; 6. Adjusts the annual budget to reflect changes in the local economy, changes in priorities, and receipt of unbudgeted revenues; 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; 1 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 Reauirements The City Charter requires a budget to be adopted for the ensuing fiscal year "before the last day of November of each year." A single appropriation ordinance is presented to Council 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. Although classified as Special Revenue Funds for budgetary purposes, the City's General Employees' Retirement and Police Pension Funds are classified as Trust and Agency Funds for Accounting purposes. The Fire Pension Fund is shown in Other Governmental with Poudre Fire Authority. 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. 2 (c) Budget Preparation While the Charter establishes time limits and the essential content of the City Manager's proposed budget, the budget preparation process is not prescribed. The preparation process is developed by the City Manager with input from the City Council. For development of the 1992 budget, the preparation schedule has been modified to allow for increased and earlier participation by the Council and the Executive Team. This modification will provide for better communication and focus on policies or issues that will have major influence on the budget. For the 1992 budget preparation process, policies and issues have been more consistently addressed by each service area with review by the Budget Review Committee. The Budget Review Committee is composed of senior management representatives from three service areas. The Committee reviews budget issues, policies and recommendations prepared by the City Manager and the Budget and Research Office prior to presentation to the Executive Team. Following Executive Team deliberation, the budget issues, policies, and recommendations are presented to the Council. The amount of available resources limits budget appropriations. In March, departments develop five year revenue projections of their revenue sources and submit them to the Budget and Research Office. The Budget Office also coordinates collection of information about the costs of providing services from the departments. Based upon the revenue projections, the costs of providing services and direction provided by Council about major revenue sources, the Budget Office staff prepares target budgets for each fund and program. All of this information is compiled into the Budget Manual which provides the basis for the development of each program budget. Departments begin developing budgets in April. In May, prior to receipt of budget proposals from departments, two Council work sessions are held. At these sessions, policy issues are discussed and Council has the opportunity to provide direction for development of departmental budgets. In late May, budgets are due into the Budget Office. All funds are expected to stay within their corresponding targets. Departments may shift resources between programs. Requests for funds above target budgets must be submitted for supplemental funding. The supplemental requests are reviewed and may be included in the proposed budget if resources are available. 3 Budget issues are reviewed in June and July and the City Manager's proposed budget is submitted to Council in late August. It is made available to the public at the same time. In September and October, two Public Hearings on the budget are held at the regular Council meetings. The City Manager solicits additional discussion and policy direction from Council at two work sessions held in September and October. If necessary, the Council may schedule additional work sessions and may also direct community budget meetings be held. The budget for the ensuing year is adopted in November. Following the passage of the Budget Ordinance, the Final Adopted Budget document is printed. (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 to 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 Annual budgets may also be decreased below adopted appropriations during the year. Changes in service demand, economic conditions, and Council goals and direction may cause such budget reductions. Each service area is responsible for developing a plan to reduce appropriations. Each plan must be in place and ready for implementation should the need 4 arise. If the City Manager directs budget reductions, Council will be informed immediately and the appropriations will be set aside through administrative action. While this administrative action does not lower the appropriations within a fund, expenditures are prevented. If the circumstances leading to the implementation of reductions change, the appropriations may be made available for expenditure. (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: 0 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. 5 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 provisions of services; • equity of comparable fees. To shelter the City from short-term decreases in any one revenue source by maintaining a diversified and stable revenue system is a primary goal of the City of Fort Collins. 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. 2.2. SALES AND USE TAX DISTRIBUTION The City's Sales and Use Tax totals 2.75 cents, developed as follows: 1968 - General City uses 1 .00 1980 - General City uses 1 .00 1982 - General City uses .25 1989 - Street Capital Maintenance .25* 1990 - CHOICES 95 Capital Improvement Program .25* 2.75 *Excluding sales of grocery food. 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 (1) Fixed Dollar Amounts Annual Debt Service Fort Collins/Loveland Airport Authority Sales & Use Tax Debt Service Reserves Street Oversizing 6 (2) General Fund Actual Sales and Use Tax revenue generated by the 2.25 cent tax in excess of the fixed dollar amounts listed above, will be transferred to the General Fund. Actual Sales and Use Tax revenue generated by the 0.25 cent tax for Street Capital projects will be transferred to, and be retained in the Capital Projects Fund for repair and maintenance of existing streets (92% to Capital Projects and 8% to the Transportation Fund). Actual Sales and Use Tax revenue generated by the 0.25 cent tax for the CHOICES 95 Capital Improvement Program will be transferred to, and retained in, the Capital Projects Fund for construction of projects approved during the CHOICES 95 process. With this pay-as-you-go program, no debt will be incurred to complete projects. 2.3. PRIVATE CONTRIBUTIONS The City encourages the solicitation of private contributions. These services and 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. 7 FINANCIAL ADMINISTRATION 3.1. ADMINISTRATIVE CHARGES The Charter states that expenses for departments rendering services to other departments shall be equitably apportioned. For Enterprise, Internal, and Special Revenue Funds, direct charges are made to the funds receiving services when they are rendered. Certain departments within the General Fund provide services to all funds and do not have a direct billing mechanism. For these General Fund departments, a cost allocation formula has been developed to apportion costs to other funds and provide offsetting revenue to the General Fund. GENERAL FUND DEPARTMENTAL COSTS TO BE ALLOCATED Departmental costs to be allocated are based on the current year's budget and on projected employment levels. The current year is the one immediately preceding the year being budgeted. (For the 1992 budget, costs to be allocated are from the 1991 budget with adjustment.) The amount to be allocated includes the budget expenditures for City Council, City Manager, City Clerk, and City Attorney. The full amount of budgets for the Employee Development department is included.The Finance department budget is reduced by the amounts reimbursed by the Utility departments, an amount linked to Special Improvement District administration, and Rebate Program administration. The Information & Communication Systems (ICS) department budget is adjusted for amounts corresponding to support for the departments listed above. HOW COSTS ARE ALLOCATED The Employee Development costs are allocated in proportion to the total number of budgeted full time equivalent positions within a fund. Except for ICS, all other General Fund administrative costs are allocated to the funds based upon corresponding revised budgets for the current year with some additional adjustments. These adjustments recognize the lower amount of administrative service required by Capital, Debt Service, and Purchased Power payments. Capital project costs are reduced by two-thirds of their budgeted amount and Debt Service payments are reduced by three-fourths. Purchased Power is also deducted from the Light & Power budget. The administrative costs for ICS are allocated through a two-stage formula. First, ICS determines what their charges will be for each particular service performed for departments, then ICSA determines the charges to each department based on which services are provided. 8 ALL FUNDS RECEIVE ALLOCATIONS BUT NOT ALL FUNDS CHARGED While Administrative Charges are allocated among all City funds, only specified funds are charged. Charges are not made to a fund if it is not self-supporting, it is an Internal Service fund, or if the funds role is merely to facilitate proper accounting procedures. For example, the Sales Tax fund and Debt Service fund receive amounts which are then transferred to other funds. Charging these funds would lead to double charging many transactions and would not correspond to the level of service provided by the departments in the General Fund. ANNUAL REVIEW During each annual budget process, the Administrative Charge calculation will be reviewed. Further refinements in the allocation formulas will be made as needed to assure that the equitable apportionment requirement of the Charter is met. 3.2. PAYMENT IN LIEU OF TAXES (PILOT) In accordance with the City Charter regarding municipality rates and finances, the water, wastewater, and electric utilities "pay into the General Fund in lieu of taxes on account of the city-owned utilities such amount as may be established by the Council by ordinance". The PILOT rate, as established by Council is 5% for the Water and Wastewater Utilities, and 6% for the Light and Power Utility. This rate is applied to the operating revenues per year for each utility. The PILOT establishes a rate approximately one and one-half (1 .5) times the rate that would be charged if the utilities were privately owned. 3.3. LEASE-PURCHASE The City of Fort Collins uses 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. This method may also be used to acquire real property. Members of management staff have developed an equipment needs schedule for rolling stock which encompasses the demands of operating departments. This schedule is used to project equipment needs for each budget year. The type of lease that the City uses is termed a conditional sales lease, in effect a purchase rather than a rental of property. The City pays for the asset in installments according to a fixed payment schedule. Each installment includes principal and interest and the City builds equity and assumes risk in the asset over the term of the lease. The annual installments are appropriated by the Council each year. 9 Advantages of lease-purchase financing over the traditional cash method of financing are: • Decreasing the impact of inflation on the purchase of new and replacement equipment. • Resolving the problem of a capital replacement needs backlog. • Conserving operating reserves. • Reducing the initial impact of the cost to user department 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. 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. According to State of Colorado House Bill 90-1164, local governments are required to identify as part of their budgets: 1) the total expenditures during the ensuing fiscal year for all lease purchase agreements involving real and personal property; 2) the total maximum payment liability under all lease purchase agreements over the entire terms of the agreements, including all optional renewal terms. We recognize that the State does not include lease purchase in the legal definition of debt, however rating agencies include lease purchase financing in calculating the City's debt burden. 3.4. TOTAL COMPENSATION PLAN The City of Fort Collins' goal as an employer is to attract and retain quality employees and also to recognize and reward quality performance. In order to accomplish this goal, the City of Fort Collins has established a total compensation plan. Total compensation is defined as the sum of the salary paid and the City's cost for benefits which are provided to compensate an employee for work performed. The objective of the total compensation plan is to pay employees fairly, competitively and in a way that is understandable. A. To ensure that employees are paid in a manner that is both internally equitable and externally competitive, total compensation will be measured annually for every representative position within a pay family. 10 Appropriate employers will be surveyed to determine fair and competitive compensation for comparable jobs. The policy of the City of Fort Collins is to compensate our employees better than seventy percent of comparable employers. B. 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. C. RETIREMENT PROGRAMS The City of Fort Collins contributes to five pension plans, including: 1 . Social Security 2. Police Money Purchase 3. Fire Money Purchase 4. General Employee Retirement 5. Old Hire Fire Defined Benefit The 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 plans consist of the following provisions: • The City will maintain contribution rates at a level sufficient to meet all current normal costs of each pension plan; • Any unfunded liability incurred by individual pension funds will be amortized over a period not to exceed twenty years; • 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. Employees participation in this plan is optional. II • A money purchase plan is offered to City Police and Poudre Fire Authority employees who do not belong to Social Security. • Money purchase plans are offered to management level employees who are also covered by Social Security. The Budget incorporates the following rate requirements to continue this policy: SOCIAL EMPLOYEE POLICE & FIRE MGMT. SECURITY GENERAL THRIFT MONEY PURCHASE M 0 N E Y NORMAL COSTS CONTRI. EMPLOYEE PLAN PLAN PURCHASE PLAN City Contri. 7.65% 3.553% 3% 8% 4% Employee Contri. 7.65% -- 3% 8% -- TOTAL 15.3% 3.553% 6% 16% 4% Unfunded Liability Fire City Contribution $84,000 3.5. 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 These categories and priorities are used as the basis for funding recommendations in the annual budget process. 3.6. 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. The agreement specifies sources of funding for operating and maintenance 12 expenses. However, it does not provide an identified source to fund continuing capital and equipment needs. The Revenue Allocation Formula specified in the agreement defines the City's contribution to the PFA for operating and maintenance. Annual Operations and Maintenance Budget The City will contribute funding for maintenance and operation costs of the Poudre Fire Authority which shall be established annually based upon a percentage of Sales & Use Tax revenues and a portion of the operating mill levy of the City's Property Tax. These funds are in addition to funds contributed by Poudre Valley Fire Protection District. The City allocates 67.09% of the property tax mills to the PFA in 1992. In accordance with Resolution 91-138, the City currently contributes 5.177 mills of existing property tax to the PFA. An allocation of 0.303 of one cent of the City's 2.25 cent Sales and Use Tax is applicable to all taxable sales and uses to the PFA. The Revenue Allocation Formula represents the City's contribution to the PFA for its operation and maintenance costs. (b) CAPITAL FUNDING The agreement provides "authorization for the PFA to request funds for capital costs pursuant to the procedures set by the City and District." The Choices 95 Capital Improvement executive committee determined that the PFA capital needs were a very high priority and recommended that the City identify a regular source of funding to meet such needs. The Council agrees with the finding of the Choices 95 executive committee and specifically recognizes that PFA has capital needs including land acquisition, construction of additional stations, and acquisition of major fire fighting apparatus. The Council has identified the property tax as the appropriate ongoing source from which to fund these needs. The amount of funding for PFA capital needs will be reviewed annually. 3.7. 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 13 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 extension for street maintenance on July 1, 1989 and the extension of the 0.25 cent January 1, 1990, for the CHOICES 95 Capital Improvement Program. In addition to these measures, the City has a Sales Tax Rebate on Food Program. This program provides for an annual rebate to members of qualifying households on the basis on residency and income guidelines. 14 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 specific uses. The major source of revenue to the General Fund is Sales & Use Tax, which accounts for approximately 58% of the revenue. Local Property Tax and Lodging Tax are also included, as are revenues derived from fees for services and materials, licenses, permits, and fines. 4.2. ENTERPRISE FUNDS The City has five Enterprise Funds. These are Golf, Light & Power, Wastewater, Storm Drainage, and Water. The Enterprise Fund classification has been used to account for various services for which exists a significant potential for financing through user charges. Historically, services were accounted for in an Enterprise Fund if financed more than 50% by user charges. In the 1992 Budget, all Enterprise Funds will recover 100% of their costs through the five year projection. The goal of all enterprise accounts is self-sufficiency. Toward this end, funds which are not recovering at least 75% of 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 time frame 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 budget/five year plan has been prepared in compliance with the following: 1 . Mission Statement "Fort Collins Light and Power is a community owned Electric Utility. We work with our customers to: • Provide safe, reliable economical systems and services; • Meet their needs as economic, environmental and technological changes occur; • Conserve resources; and • Improve the quality of systems and services. 15 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 maintain positive net income after paying the full cost of operating and maintaining 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 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; • To provide a purchase power reserve equal to approximately 25% of the annual revenue from the sale of electrical energy. This reserve shall be used to partially off-set, defer, or mitigate the impact of purchase power cost increases due to factors such as federal power issues or the competitive marketing of post 1994 surplus Rawhide power. Reserves projected to exceed the 25% level shall be reported to Council during the annual budget process. 3. Excess Retained Earnings Priority for the accumulation of reserves and excess retained earnings shall be as follows: reserves shall first be accumulated in the operating reserve, second in future capital improvements reserve, third in the purchase power reserve. After reserves are funded as specified in 2. above, any excess retained earnings shall be added to the purchase power 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. 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. 16 (b) Water & Wastewater Utilities Formally adopted financial policies are an important factor in planning the financial operations of the Water and Wastewater Utilities. Policy statements were developed and incorporated into the five-year financial plan as follows: 1 . Net Income The Water and Wastewater utilities shall not have a significant net loss after paying the full cost of operating and maintaining the utility plant. Water and Wastewater utility rates shall be set at a level to provide for the net income requirement. 2. Working Capital Reserves The following reservations of working capital shall be established and maintained in each utility in the following order of priority: 1 . Debt Service Reserve -equal to the amounts restricted for debt service by bond ordinance. 2. A-B Caoital Reserve--equal to the amount of bond proceeds available and restricted for projects relating to the Anheuser-Busch brewery. 3. Operating Reserve--at least equal to 2% of the actual or projected operating revenue for the year. 4. Capital Reserve--equal to the amount of working capital available after the above three reserves have been satisfied. 3. Capital Cost Financing Capital cost will be identified as either: (1) Minor capital--relatively small capital acquisitions such as vehicles, lab equipment, or leasehold improvements; or (2) Capital Projects--major additions, improvements, or expansions to utility plant. Financing for minor capital is through utility charges. Financing for capital projects is provided through a combination of utility charges, long-term debt financing (bonds, loans, etc.), and utility plant investment fees. In addition, all or a portion of capital costs may be funded from federal or state grants and other forms of contributed capital. 17 (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 based on the category of land usage and a per square foot per month rate. 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 program 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. 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, monthly 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 projected annual operating revenue; • Debt Reserve - equal to the amount required by the individual bond ordinance. 18 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. 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, Transit, Transportation, and the City's 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 and Maintenance and Performing and 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 and Visual Arts Programming. A transfer from the General Fund will make up the difference between total revenue and expenditures. 2. The Cultural Services and 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. 19 (b) Recreation Fund Fee Policy The following fee policy for the Recreation Fund was adopted by Resolution 90- 132 on September 4, 1990. The goal of the policy is to provide for a more equitable distribution of the costs of recreational programs between program users and General Fund tax dollars. Fund Structure Costs associated with the Recreation Fund shall be defined as either: 1) Program Costs; or 2) Community Good Costs. 1 . Program costs are directly associated with the activities and facilities used by the citizens, and include the following: Activity Costs • part time staff • materials 0 equipment • participant transportation • other costs directly associated with conducting activities Facility Operation and Maintenance Costs • minor repairs • custodial equipment and supplies • building utilities • specialized items • other operations and maintenance costs directly associated with operating facilities Fees and charges shall cover the cost of the direct program experience and facilities used. The fees charged will not exceed the cost of the specific activity in which a person is participating. 2. Community Good costs are those costs that are necessary to provide a program but are not directly experienced by the user. Such costs include the following: • full time recreation staff • office operation costs such as telephone and computer charges 0 training costs • dues and subscriptions • insurance • office supplies and equipment • other costs not directly experienced by the users 20 The General Fund shall cover "Community Good" costs. General Fund will also cover deficits in programs that cannot recover all their costs through fees. Generally, these are programs designed for special populations where it is not feasible to cover the cost of participation. Costs that are defined as "Community Good" costs will be subject to the same guidelines as established for other General Fund budgets. Reserves 1 . Scholarship Reserve - established to pay fees for participants who are unable to afford full fees for programs; targeted at 3% of the program cost portion of the fund; supported by the General Fund each year and phased in over four years. 2. Operating Reserve - to be maintained at 7% of the program costs portion of the fund, excluding one time capital items and lease purchase payments 3. Any excess fund balance will be distributed within the following priorities: 1 ) maintaining operating reserves; 2) equipment and repair needs; 3) capital needs; 4) new program needs. 21 RESERVE POLICIES 5.1. 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. 5.2. TYPES OF RESERVES The City of Fort Collins maintains reserves that are required by law or contract and that serve a specific purpose. These types of reserves are considered restricted and are not available for other uses. Within specific funds, additional reserves may be maintained according to adopted policies. All expenditures of reserves must be approved by Council. This may occur during the budget process or throughout the budget year. GENERAL FUND The top priority goal of the Council is to improve the fiscal health of the City. Annual revenue projections are conservative and authorized expenditures are closely monitored. In stable economic times, the combination of these two strategies leads to revenue collections higher than actual expenditures. The net resources are then available to fund the designated reserves. Year-end balances may also be used as a funding source in the next budget year. The General Fund reserves are funded from net revenues each year as part of the budget process to maintain them at appropriate levels. The combined total of these four reserves should not exceed 20% of the approved General Fund operating expenditures. (Note: this recommendation is the high end of a range for year-end reserves from the State of Colorado financial handbook for local governments.) The target for 1992 is 15%. • Designated for Financial Uncertainty - this reserve is maintained in the General Fund and is designed to provide orderly adjustment to unforeseen reductions in revenues in the current year if budgeted revenues are less than actual revenues and expenditures, including encumbrances, are greater than actual revenues. The amount of money to be held in this reserve should be approximately 5% of approved General Fund operating expenditures. 22 If revenue shortfalls are measurable during the current budget year, the Charter allows use of monies from this reserve to cover authorized expenditures. Similarly, Charter authorized adjustments may be made as part of the year-end closeout if additional monies are needed to cover authorized expenditures. The City Manager will notify the City Council when draws are made from this reserve. • Designated for FACILITIES MAINTENANCE - this reserve provides for deferred maintenance needs, major renovations, and repairs to maintain the City's facilities as defined in the 1990 fixed asset report. The level of the reserve is determined based on the value of buildings and improvements as recorded in the Comprehensive Annual Financial Report (CAFR) divided by an average asset life of 35 years. The 1990 CAFR presents the total value of buildings and improvements as $48,741,598. Dividing this asset value by 35 yields a targeted reserve level of $1 ,392,617 for use in 1992. The Facilities Maintenance Reserve is used during the current budget year by a supplemental appropriation of prior year reserves. Monies maintained in this reserve are also authorized for expenditure in the annual budget. • Designated for Eauioment Reolacement - this reserve provides for the timely replacement of operating equipment (vehicles, machinery, and computer equipment). As opposed to a depreciation reserve, this reserve is intended to provide flexibility in meeting the demand for new equipment and stabilize the cost of financing in those years where larger equipment purchases occur.To facilitate planning for use of this reserve, the Equipment Division prepares a ten-year equipment needs assessment and leasing plan. The targeted amount of the reserve is determined by the value of lease equipment (vehicles, machinery, and computer equipment) plus the value of non-leased computers divided by the estimated asset life of five years. (The year end 1990 fixed asset report shows leased equipment at $5.6 million and non-leased computers at $1 .1 million. Dividing the total of $6.7 million by a five year asset life results in an estimated reserve of $1 ,340,000.) The Equipment Replacement Reserve is used during the current budget year by a supplemental appropriation of prior year reserves. Monies maintained in this reserve are also authorized for expenditure in the annual budget. 23 • Designated for Contingencies - this reserve provides for the temporary financing of unforeseen opportunities or needs of an emergency nature including increases in service delivery costs. For 1992, this is a new category of General Fund reserves, however, it is similar to the undesignated reserve. Monies held in this reserve may be appropriated during the current budget year and may also be used for the ensuing budget years as a revenue source if projected expenditures needed to maintain appropriate levels of service exceed projected revenues. Of all General Fund reserves, this is the most flexible. The amount of money to be held in this reserve should not exceed 10% of the approved General Fund operating expenditures. OTHER FUNDS • Operating Reserves - operating reserves are held in Enterprise, 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 year. 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. • Capital Reserves - Capital reseves are established in order 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. 24 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. • Debt Reserves - Debt reserves are established to protect bond holders 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. The City Council may establish, upon recommendation of the Financial Officer, supplemental Debt Service reserves in addition to those expressly required by Bond Ordinance. Such reserves shall not be deemed to confer any rights upon Bondholders over and above those set forth in the Bond Ordinance for each bond issue. 25 CAPITAL IMPROVEMENT FUNDS 6.1. CITIZEN PARTICIPATION With Resolution 87-130, Council solicitated citizen involvement and participation in formulating a Capital Improvements Program known as Choices 95. By this Resolution, a citizen committee was created to make recommendations on the capital improvement needs of the community and the financing of those improvements. The recommended Capital Improvement Program was presented to Council by the Choices 95 citizen committee along with a pay-as-you-go funding recommendation. The Choices 95 citizen committee was instrumental in the determination of projects and funding mechanism to be accomplished in the 1991-1998 Capital Improvement Program. The residents of Fort Collins on March 7, 1989, approved the extension of a 0.25 cent Sales and Jse Tax rate (excluding grocery food) to finance the Choices 95 Capital Improvement Program. This extension is effective for a seven year period beginning January 1, 1990. In addition, the residents also approved the extension of 0.25 Sales and Use Tax rate (excluding grocery food) to finance much needed resurfacing of the City's streets. This extension is effective July 1, 1989 and expires January 1, 1997. 6.2. CAPITAL IMPROVEMENT POLICY With the exception of the Choices 95 Capital Programs, 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; • 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. 26 6.3. CAPITAL IMPROVEMENT PROGRAM The City's Capital Improvement Program includes the Capital Projects Fund,the Conservation Trust Fund, and the Parkland Fund. Capital Projects Fund Projects within the Capital Projects Fund are classified as follows: • General City Capital Projects General Capital Projects Choices 95 Capital Projects Street Capital Maintenance GENERAL CITY CAPITAL PROJECTS: General Capital Proiects include minor street repair, concrete program, pedestrian access ramps, major building maintenance and other minor capital projects. General Capital Projects are financed by transfers from the appropriate financing fund and can be financed through bond proceeds and/or grant funds deposited directly in the Capital Projects Fund. Choices 95 Capital Projects were recommended by the Choices 95 citizen committee and approved by the voters of Fort Collins. The proceeds of the 0.25 cent Sales and Use Tax is specifically dedicated to finance these projects. Street Capital Maintenance consists of the Street Overlay and Sealcoat Program. This program provides for repair and maintenance of existing streets using cracksealing, patchings, sealcoats, overlays or reconstruction. Council recognized the importance of maintaining existing City streets, and the voters approved using 0.25 cent Sales and Use Tax revenue to finance the projects. (92% of the revenues are allocated for street rehabilitation and 8% for minor street maintenance). UTILITY CAPITAL PROJECTS: Utility Capital Projects, specifically Storm Drainage, Wastewater and Water, were in prior years also part of the Capital Projects Fund. Beginning in 1991, utility capital projects are budgeted within the appropriate enterprise fund. Sources of funding for utility capital projects are bond proceeds and specific fees and charges. The 1992 Recommended Budget provides for the following utility capital projects. 27 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 including associated administrative costs and charges. Consistent with Colorado statutes, the operation and maintenance of existing open space and trails may also be financed by these funds. Parkland Fund The Parkland Fund provides for the development of neighborhood parks, as financed by a Parkland Fee. The Parkland Fee is collected from developers for each new dwelling unit established within the City limits. The Parkland Fund includes funds for neighborhood park capital improvements, with associated operation and maintenance costs included in the General Fund operating budget. 28 DEBT POLICIES 7.1. POLICY STATEMENT The City of Fort Collins recognizes the primary purpose of capital facilities is to support provision of services to its residents. Using debt financing to meet the capital needs of the community must be evaluated according to two tests - efficiency and equity. The test of efficiency equates to the highest rate of return for a given investment of resources. The test of equity requires a determination of who should pay for the cost of capital improvements. In meeting the demand for additional capital facilities, the City will strive to balance the load between debt financing and "pay as you go" methods. The City realizes failure to meet the demands of growth may inhibit its continued economic viability, but also realizes too much debt may have detrimental effects. Through the rigorous testing of the need for additional debt financed facilities and the means by which the debt will be repaid, the City will strike an appropriate balance between service demands and the amount of debt. The City of Fort Collins uses 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 and to decrease the impact of the cost to the user department by spreading the costs over several years. This method may also be used to acquire real property. The type of lease that the City uses is termed a conditional sales lease, in effect a purchase rather than a rental of property. The annual installments for all leases are appropriated by the Council each year. For purposes of securing credit ratings and monitoring annual debt service as a percentage of operating expenditures; lease purchase financing is considered a long-term liability of the City and therefore will be issued under the same conditions as other long-term debt. 7.2. AUTHORIZATION FOR MUNICIPAL BORROWING The Charter authorizes the borrowing of money and the issuance of the following securities to evidence indebtedness: - short-term notes, - general obligation securities, - revenue securities, - refunding securities, - special assessment securities, - tax increment securities, and - any other securities not in contravention of the Charter. The Charter also regulates which securities may be issued only after a vote of the electors of the City and approved by a majority of those voting on the issue. 29 ELECTION REQUIRED Securities payable in whole or in part from Ad Valorem Taxes of the City except tax increment securities. The aggregate sum of these securities which have not been refunded or defeased shall not exceed 10 percent of the assessed valuation of taxable property within the City. ELECTION NOT REQUIRED - Short-term notes (12 months or less) issued in anticipation of the collection of taxes and other revenue. - Securities issued for the acquisition of water rights or capital improvements for water treatment. - Securities payable solely from revenue other than Ad Valorem taxes of the City. - Refunding securities issued to refund and pay outstanding securities other than those payable in whole or part from Ad Valorem Taxes. - Securities for any special or local improvement district. - Tax increment securities payable from Ad Valorem Tax revenue derived from increased valuation for assessment of taxable property within a plan of development or other similar area as defined by applicable State Statutes. Securities issued for the acquisition of equipment or facilities pursuant to a lease-purchase contract. 7.3. CONDITIONS FOR USING DEBT Debt financing of capital improvements and equipment will be done only when the following conditions exist: When non-continuous projects (those not requiring continuous annual appropriations) are desired; When it can be determined that future users will receive a benefit from the improvement; When it is necessary to provide basic services to residents and taxpayers (for example, purchase of water rights); 30 When the rights of bond buyers and subsequent investors are protected through full disclosure; and When total debt, including that issued by overlapping governmental entities, does not constitute an unreasonable burden to the residents and taxpayers. 7.4. DEBT INDICATORS AND TARGET LEVELS OF DEBT While no absolute measures of debt burden exist, the City recognizes that municipal bond rating agencies and financial analysts have established key debt indicators by which they evaluate the credit strength of issuers. Since debt issued by entities sharing the same geographic area, for example, Poudre R-1 School District, cannot be controlled by the City, the indicator that will be used will be calculated using only direct debt issued by the City itself. The indicator does not include debt issued by the City for its utilities as the rates collected for services are the source of repayment. The City Council has chosen to use direct debt service as a percent of General Fund and debt service expenditures to monitor its debt. This indicator measures how the City's debt burden compares to financial operations. As debt service requirements increase, the flexibility to make decisions regarding other expenditures is reduced. Excessive debt may be indicated if the percentage is maintained at very high levels. A debt service to operating budget expenses ratio of 10 to 15 percent is considered fair; over 15 percent is generally considered poor. THE TARGET INDICATOR IS: Direct debt service as a percent of operating expense: 10 to 12 percent for the 1992-1996 period. Recent credit analyses of City issues have noted the debt burden of the City is above average and have questioned the ability to meet future debt service demands. By establishing a target indicator defined above and managing debt accordingly, the City intends to reduce its debt burden over the next five years. Since the City's sustained growth causes demand for capital improvements and resulting debt financing, the City target is established at a level above the median for cities of comparable size. The City target is also adjusted because certain portions of its debt burden are self-supporting. Specifically, Anheuser- Busch has pledged to cover a large share of the Sales Tax revenue debt. Property taxes from the Downtown Development Authority District are pledged to cover its debt service. Finally, Special Improvement District debt was issued on the premise that it would be self-supporting. Therefore, the indicator will be tracked using three different debt loadings. The first is a full loading of direct debt, similar to the calculation method used by Moody's Investor Service. The 31 second subtracts out from the Moody's calculation the full Anheuser-Busch debt portion, fifty percent of Special Improvement Districts debt, and twenty percent of the Downtown Development Authority Debt. The final loading deducts all Anheuser-Busch, Special Improvement Districts, and Downtown Development Authority debt. Direct Debt Service as a percent of operating expense: 10 to 12 percent for the 1992-1996 period. Annual Debt Service as a Percentage of Operating Expenditures 30 Full Loading of All Direct Debt 25 Direct Debt Less Some Self-Supporting 20 Target Zone % 15 (10-12%) 10 - - - - - 5 Direct Debt Less All Self-Supporting 0 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 Year P - H - O - J - E - C - T - E - D 32 7.5. SOUND FINANCING OF DEBT When the City utilizes debt financing, it will ensure that the debt is soundly financed by: - Conservatively projecting the revenue sources that will be used to pay the debt; - Financing the improvement over a period not greater than the useful life of the improvements; - Determining that the benefits of the improvement exceed the costs including interest costs; - Maintaining a debt service coverage ratio which ensures that combined debt service requirements will not exceed revenues pledged for the payment of debt; and - Evaluating proposed debt against the target debt indicators. 7.6. FINANCING METHODS The City maintains the following policies in relation to methods of financing used to issue debt: - Total General Obligation (payable from Property Tax levies) debt will not exceed 10% of assessed valuation per the City Charter; - Where possible, the City will use revenue or other self-supporting bonds instead of General Obligation Bonds; - When appropriate, the City will issue non-obligation debt, for Example, Industrial Development Revenue Bonds,to promote community stability and economic growth; - Staff will maintain open communications with bond rating agencies about its financial condition and whenever possible, issue rated securities; and - Staff will exchange information with Larimer County, Poudre R-1 School District, the Poudre Valley Hospital District and other entities whose debt would contribute to the overlapping debt indicators for the purpose of monitoring such debt burdens. Annual budgets include appropriations for debt service payments and reserve requirements for all outstanding debt and for debt anticipated to be issued within the ensuing budget year. 33 CASH MANAGEMENT AND INVESTMENT POLICY (Summarizing Resolution No. 90-44) 8.1. POLICY STATEMENT This policy was adopted by the Council of the City of Fort Collins as Resolution 90-44. It is intended to supplement and expand upon Ordinance No. 109, 1988, "Providing for the investment and deposit of public funds and moneys of the City of Fort Collins." 8.2. SCOPE This policy shall apply to the investment of all general and special funds of the City of Fort Collins (hereinafter referred to as the "City") over which it exercises financial control, including the City of Fort Collins Firefighters Pension and General Employees Retirement Funds. 8.3. OBJECTIVES The City's principal cash management and investment objectives are: • Preservation of capital through the protection of investment principal. • To maximize the cash available for investment. • Maintenance of sufficient liquidity to meet the City's cash needs. • Diversification of investments to avoid incurring unreasonable risk regarding a specific security, maturity periods, or institution. • To maximize the rate of return for prevailing market conditions for eligible securities. • Conformance with all federal, state and other legal requirements. 8.4. DELEGATION OF AUTHORITY Responsibility for the collection and investment of all City funds is assigned to the Financial Officer by the Charter, subject to direction of Council by resolution. The Financial Officer may appoint other members of the Finance Department to assist in the cash management and investment function. The City Manager shall appoint an investment committee consisting of the Financial Officer and at least two (2) other employees of the City knowledgeable in the area of governmental investments. The purpose of the committee shall be to provide advice to the Financial Officer regarding the operation of the Cash Management and Investment Program. The committee shall also review the actual rate of return on the portfolio as compared to the target rate of return. 34 _ The Financial Officer shall have the discretion to appoint one or more investment advisors registered with the Securities and Exchange Commission. All investments made through such investment advisors shall be within the guidelines of this Cash Management and Investment Policy. 8.5. PRUDENCE The standard of prudence to be used for managing the City's assets is the "prudent investor" rule, which states, "Investments shall be made with judgment and care, under circumstances then prevailing, which persons of prudence, discretion and intelligence exercise in the management of their own affairs, not for speculation, but for investment considering the probable safety of their capital as well as the probable income to be derived." 8.6. ELIGIBLE INVESTMENTS All investments will be made in accordance with Ordinance 109, 1988 and the Cash Management and Investment Policy adopted by the Council of the City of Fort Collins by Resolution 90-44. The following is a summary of the authorized investments: • Any securities now or hereafter designated as legal investment for municipalities in any applicable statute of the State of Colorado. • Interest-bearing accounts or time certificates of deposit at state or federally-chartered savings and loan associations or national banks in Colorado which are designated as depositories for public moneys. • Obligations of the United States Government and obligations issued by an agency, instrumentality or public corporation of the United States. • Obligations issued by or on behalf of the City. • Obligations issued by or on behalf of any state, political subdivision, agency, instrumentality or public corporation having an investment grade rating from Moody's Investors Service or Standard & Poor's Corporation. • Prime-rated bankers acceptances and prime-rated commercial paper. • Guaranteed investment contracts of domestically-regulated insurance companies having a claims-paying ability rating of "AA" or better from Standard & Poor's or A+ from Best Rating Services. • Repurchase and reverse repurchase agreements of any marketable security described in Ordinance No. 109, 1988 which afford the City a perfected security interest in such security. 35 Local government investment pools authorized by the State of Colorado. • Shares in any money market fund or account, unit investment trust or open-or close-end investment company, all of the net assets of which are invested in securities described in this section, to the extent not prohibited by Colorado Constitution or State Statutes. Pension funds may also be invested in equipment trust certificates, real property and loans secured by first mortgages or deeds of trust on real property, tax certificates issued on real property in Colorado, and common or preferred stock or debt obligations of U.S. Corporations. 8.7. REPORTING AND REVIEW An investment report shall be prepared on a quarterly basis and submitted to the City Manager. An annual summary shall be published in a newspaper of local circulation. The Financial Officer and designated investment staff shall meet at least quarterly to review the portfolio's adherence to appropriate risk levels and to compare the portfolio's total return to the established investment objectives and goals. 8.8. ETHICS AND CONFLICTS OF INTEREST City officers and employees involved in the investment process shall adhere to the rules of conduct concerning conflicts of interest as stated in Art. IV, Section 9 (B) of the Charter of the City of Fort Collins, Colorado. 8.9. POLICY REVISIONS This Cash Management and Investment Policy will be reviewed periodically by the City Manager and the Financial Officer and may be amended by City Council as conditions warrant. 36