HomeMy WebLinkAbout(0015) 05 ISF Insurance Reserve Policy-redlined.PDFTORf�'16RTH,o
I. Authority:
The Fort Worth City Council is responsible for legislation, policy formulation, and
overall direction setting of the government. This includes the approval of financial
policies which establish and direct the operations of the City of Fort Worth. The City
Manager and Assistant City Managers are responsible for carrying out the policy
directives of the City Council and managing the day to day operations of the
executive departments, including the Department of Financial Management Services.
This policy shall be administered on behalf of the City Manager and Assistant City
Managersby the Chief Financial Officer/ Director of Finance.
II. Purpose:
The City desires to maintain a prudent level of financial resources to guard its
stakeholders against service disruption in the event of unexpected temporary revenue
shortfalls or unpredicted one-time expenses. In addition, this policy is intended to
document the appropriate Reserve level to protect the City's credit worthiness and
provide adequate cash flow based upon the traditional operating cycle. The
Government Finance Officers Association's (GFOA)best practice for reserves
recommend, at a minimum, regardless of size, maintain an unrestricted net position
of no less than two months of regular operating revenues or operating expenses.
Reserves are accumulated and maintained to provide stability and flexibility to
respond to unexpected adversity and/or opportunities and to minimize the costs
associated with short-term cash borrowingThe internal Serviceinsur-anee—Funds
Reserves are aecumulated and maintained to provide stability and f4e)Eibility to
respond to unexpected adversity and/or opportunities and to minimize the costs
associated with short term cash bor . ".
This policy establishes the amounts the City will strive to maintain in its
P ronrietary Fund Reserves, how the Reserve will be funded, and the conditions
under which the Reserves may be used. This policy is intended to supplement,
but not supersede, provisions of ordinances of the City governing the issuance or
incurrence of bonds or other obligations secured in whole or in part by revenues or
credited to a Proprietary FundInternal Service insurance Funds Reserve, how the
Reserve Nvill be funded, and the conditions under which the Reserves may be used.
III. Applicability and Scope:
This policy shall apply to all Proprietary Funds" internal See- iee insu -ane Funds
under the budgetary and fiscal control of the City Manager and the City Council.
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HIV. Related Documents and References:
A. Operating and Capital Budget Policy
B. Long -Term Financial Planning Policy
C. Capital Asset Investment and Management Policy
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Vl-.V. Policy
Reserve Levels for Internal Service Insurance Funds - The City will maintain
the following minimum reserve levels in all Internal Service Insurance
Funds plxp I P;.xplq-The City will maintain the follewing minimum reserve
levels in all internal Ser-viee lnsur-anEeFunds:
1. A goal of Working Capital in Insurance Funds three months (25%) of
the next fiscal year budgeted operating expenses (including operating
transfers out). This calculation shall be performed using the operating
fund QRIyA minimum level of Working Capital in insurance Fu
between Avo and three months of regular-; on going Operating Expenses
2. No Insurance Fund shall have a negative Unrestricted Net Position.
This calculation shall be performed by using all of the funds of the
respective reporting group of the specific insurance related internal
service fund.
3. In addition, the City acknowledges that initially, not all funds will meet
the minimum requirement for Working Capital outlined in this policy. A
fund will be considered compliant with this policy as long as the financial
position shows continuous improvement each fiscal year.
V44-.VI.Monitoring Performance
A. The City will measure its compliance with this policy on an annual basis as
of September 30th each year or as soon as practical after final year-end
account information becomes available. During the course of the fiscal year
the Department of Financial Management Services and the Performance
and Budget Office shall closely monitor the City's revenues and expenses to
ensure Reserves are not used beyond any planned usage.
B. If, based on staff's analysis and forecasting, the target level of Reserves is
not met at fiscal year-end or is not likely to be met at any point within a
five-year time horizon, then during the annual budget process a plan to
replenish the Reserve levels will be developed by collaboration among
affected departments and the Department of Financial Management
Services and the Performance and Budget Office based on the requirements
outlined in this policy.
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C. Funding the Reserve_ Funding of Reserve targets will generally come
from excess revenues over expenditures or one-time revenues, non-
recurring revenues, and budget surplus. Year-end surpluses are an
especially appropriate source for replenishing fund balance.Funding ointernal service insurance funds Reserve targets Nvill generally co -me frorn
excess r-evenues ever- expenses or- one time r-evefmes.
D. Periodic Review of the Targets — At a minimum, during the annual financial
planning/budget process staff shall review the current and five-year
projected Reserves to ensure that they are appropriate given the economic
and financial risk factors the City is subject to.
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IX. Conditions for Use of Reserves
The City intends to limit use of Proprietary Reserves to address unanticipated,
non -recurring needs. Reserves shall not be applied to recurring annual
operating expensesit is the intent of the City to limit use of internal service
insurance fund Reserves to address unanticipated, Non Recurring needs.
Reserves shall not be applied t r i operating expenses. Reserves
may, however, be used to allow time for the City to restructure its
operations in a deliberate manner (as might be required in an economic
downturn), but such use will only take place in the context of an adopted
long-term plan.
X. Excess of Reserves
In the event Reserves exceed the minimum balance requirements, at the end of
each fiscal year, any excess Reserves may be used in the following ways:
1. Fund accrued liabilities, including but not limited to debt
service, pension, and other post -employment benefits as
directed and approved within the long-term financial plan
and the annual budget ordinance. Priority will be given to
those items that relieve budget or financial operating
pressure in future periods;
2. One-time expenses that do not increase recurring operating
costs that cannot be funded through current revenues.
Emphasis will be placed on one-time uses that reduce future
operating costs; or
3. Start-up expenses for new programs, provided that such
action is approved by the City Council and isand is
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Proprietary Fund Reserve Policy
Tntorr,al Corvir-o Fund T?oc-ervo Doliw
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considered in the context of multi -year projections of revenue
and expenses as prepared by the Department of Finance.
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XI. Authority over Reserves
The City Council may authorize the use of Reserves. The Financial
Management Services and Planning & Data Analytics departments -The
Department of Financial Management Services and the Performance and
Budget Of will regularly report both current and projected Reserve levels
to the City Manager and City Council.
XII. Quality Control and Quality Assurance:
It is the responsibility of the Chief Financial Officer/Director of Finance to
ensure the presence of procedures that provide sufficient guidance to affected
City personnel to fulfill the intent of this policy.
These policies will be reviewed at least annually and updated on an as -needed
basis.
XIII. BasisMetries:
Generally Accepted Accounting Principles (GAAP - Full Accrual) basis is use for
calculating the reserve level for Proprietary Funds ReserveTe be developed and managed
accordingly.
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