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HomeMy WebLinkAbout(0014) 04 Enterprise Fund Reserve Policy-redlined.PDFFORT WORTH. Proprietary Fund Reserve Policy 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 Managers by 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. The Enterprise Funds 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 borrowing. This policy establishes the amounts the City will strive to maintain in its Enterprise Fund Reserve, 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 an Enterprise Fund. III. Ayylicability and Scope: This policy shall apply to all Proprietary Funds under the budgetary and fiscal control of the City Manager and the City Council. HIV. Related Documents and References. A. Operating and Capital Budget Policy 11Page S. Long -Term Financial Planning Policy C. Capital Asset Investment and Management Policy 21Page FORT WORTHO Enterprise Fund Reserve Policy Vl-.V. Policy' Reserve Levels -The City will maintain the following minimum reserve levels in each Enterprise Fund, consistent with State law and the terms of ordinances pursuant to which obligations have been issued or incurred that are secured in whole or in part by revenues held in or credited to an Enterprise Fund: A goal of a minimum level of Working Capital in Enterprise Funds equivalent to three months (25%) of the next fiscal ,year budgeted operating expenses. This calculation shall be performed against the operating fund only^ +>,fee (250 ` ..,, nths of regular-, on going Oper-ating Expenses (ineluding opera transfers out). This calculation shall of includeNon- Recurring T erns and shall be per-F.,,.,,,eagainst the operating fund o' ............ MO. . . . . .... . .. . .. .. . I 0I ........ M �2. A Reserve of 100 Days cash on hand with a goal of 150 Days Cash on Handminknum Resefve of 100 Pays Cash on Hand with a goal of 450 Pays Cash an 14 . This calculation shall be performed against the operating fund only. 43. The City's goal is that no Enterprise Fund shall have a negative Unrestricted Net Position. This calculation shall be performed by using all of the funds for respective reporting group. 5:4.In addition, the City acknowledges that initially, not all funds will meet the minimum requirement for Working Capital and/or Days Cash on Hand 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. V14-.VI.Monitoring Performance A. For purposes of this calculation, Working Capital will include long-term investments that can be liquidated within five business days. The City will 31Page measure its compliance with this policy on an annual basis as of September 30th each year or as soon as practical after final fiscal year-end financial information becomes available. BDuring the fiscal year, the Financial Management Services and Planning & Data Analytics departments shall closely monitor the City s revenues and expenses to ensure Reserves are not used bevond anv Dlanned usagetainethe course —of the fiscal vear the r 41Page FORT WORTHO Enterprise Fund Reserve Policy 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 r-e«i.-eme t_the requirements outlined in thispolicy. 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 balanceFu ding of Reserve tar -gets one time will generallyrn eee— rent excess revenues ego=er expenses e� 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 sttbjecttesubjectb IX-.VII. Conditions for Use of Reserves It is the intent of the City to limit use of Proprietary€Tterpfise Reserves to address unanticipated, Non -Recurring needs. Reserves shall not be applied to recurring annual operating expenses. Reserves may, however, be used to allow time for the City to restr-Qetur-e 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 longadopted long-term plan. X-.VIII. Excess of Reserves In the event Reserves exceed the minimum balance requirements, at the end of each 51Page fiscal year, any excess Reserves may be used in the following ways: 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; 61Page FORT WORTHO Enterprise Fund Reserve Policy 2. Appropriated to lower the amount of bonds or increase the pay-as-you-go contributions needed to fund capital projects in the City's Capital Improvement Plan; 3. 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 4. Start-up expenses for new programs, provided that such action is approved by the City Council and is considered in the context of multi -year projections of revenue and expenses as prepared by the Department of Finance. SIX. Authority over Reserves The City Council may authorize the use of Reserves. TThe Financial Management Services and Planning & Data Analytics departments Management Services and the VefformanEe and Budget 04ke will regularly report both current and projected Reserve levels to the City Manager and City Council. YJLX. 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 thispolicy. X41-RXI. BasiMetrks: Generally Accepted Accounting Principles(GAAP - Full Accrual) basis is use for calculating the reserve level for Proprietary Funds ReserveTe be developed and managed accordingly. 71Page 81Page FORTWORTHo 'o 91Page