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HomeMy WebLinkAboutR-2024-017 Amending the Stabailization Reserve Policy RESOLUTION NO. R-2024-017 A RESOLUTION AMENDING THE STABILIZATION RESERVE POLICY BE IT RESOLVED BY THE BOARD OF ALDERMEN OF THE CITY OF RIVERSIDE, MISSOURI AS FOLLOWS: THAT the Board of Aldermen approves the amended Stabilization Reserve Policy, effective for the 2024 fiscal year, attached hereto and incorporated herein by reference; and FURTHER THAT the Mayor, the City Administrator, Finance Director, and other appropriate City officials are hereby authorized to take any and all actions as may be deemed necessary or convenient to carry out and comply with the intent of this Resolution. PASSED AND ADOPTED by the Board of Aldermen of the City of Riverside, Missouri, the 6th day of February 2024 ayor Kathleen L. R se �ATTEWT _a Rodin P &id, City Clerk City of Riverside, MO Stabilization Reserve Policy — updated 02/06/2024 Background The City of Riverside maintains its financial operations in a manner consistent with sound financial management principles. An adequate fund balance level is an essential element in both short-term and long-term financial planning. It serves to mitigate current and future risks, sustain operations during economic downturns, provides cash flow liquidity for the City's general operations, and enhances creditworthiness. Maintenance of sufficient levels of fund balance enables the City to stabilize funding for operations, stabilize taxes and fees, and realize cost savings in issuing debt. While adequate levels of fund balance are important, the City strives to maintain an appropriate amount that is neither too high nor low. Purpose This policy establishes guidelines for preserving an adequate fund balance, also known as a stabilization reserve, to sustain financial stability and to provide prudent management of the City's financial reserves. Fund balance is a surplus of funds accrued from unexpended operating budgets and unanticipated revenues. Components of Fund Balance Fund balance consists of five accounts: nonspendable, restricted, committed, assigned, and unassigned. Funding of these accounts follows the order listed. • Nonspendable. This classification represents funds that are inherently nonspendable. Resources that must be maintained intact pursuant to legal or contractual requirements are nonspendable, such as the capital of a revolving loan fund. This can include assets that will never convert to cash such as inventory or will not convert to cash within the current fiscal year such as the long-term portion of accounts receivable. • Restricted. These funds are limited by externally enforceable limitations on use. This includes limitations from the entity providing the money, such as grantors. Also, this classification includes funds with limitations placed by law or enabling legislation, such as charter or state law. • Committed. Funds in this classification are those with limitations the government places on itself. The purpose of these funds is decided by the board of aldermen action and requires the board of aldermen action to change the purpose. • Assigned. Assigned fund balance has limitations based on the intended use of the funds. The assigned use can be established by the board of aldermen, or the City Administrator as described in the financial statements, such as self-insurance assignments and fund balance to be used in the subsequent year's budget. • Unassigned. Residual net resources, or the balance after restricted, committed, and assigned, are classified as unassigned fund balance. This is the amount of fund balance that is available to address emergencies and provide fiscal stability. This is the classification governed by this Fund Balance Policy. Policy Within the unassigned fund balance, the City has established a stabilization reserve to be used in unforeseen, unbudgeted emergency situations, such as rapidly declining revenues; the loss of a major taxpayer; sudden changes in revenues or spending requirements imposed by the state or federal government; natural disasters or emergency infrastructure failures; or unforeseen litigation. Calculation A minimum of nine months of general fund budgeted expenditures is prudent based upon an evaluation the City's operating characteristic, reliance on gaming revenue, lack of a property tax levy, state and local economic outlooks, emergency and disaster risk, and other contingencies. This calculation is based on the General Fund's on-going operational expenditures and excludes transfers out, and one-time capital expenditures or projects. The City Administrator will report to the Board of Aldermen an estimated, unaudited balance of the unassigned fund balance during the annual budget submission process. Recommendations for the use of these funds would be included as an element of the annual operating budget. Utilization The reserve funds should only be used to provide a short-term solution to maintaining services until projected revenue growth or necessary expenditure reductions are achieved to balance the budget. The City will evaluate the current economic conditions and their impact on future revenue projections to determine the extent of expenditure reductions or revenue increases that are required to achieve day-to-day financial balance. Restoration When it becomes necessary for the City to draw funds from the reserve funds, the City will develop a plan to replenish the account to the minimum level from net revenue surpluses in subsequent fiscal year(s) until the balance is restored to the minimum level.