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HomeMy WebLinkAbout2013-01-26 PACKET 04.4A a C� V c� UL O V) V) V 0 L- 0 LL Cottage Grove h ere Pride and Vos perity Meet To: Mayor and City Council From: Ryan R. Schroeder, City Administrator Date: January 23, 2013 Subject: Fiscal Agreement At the Saturday Planning Workshop, Finance Director Robin Roland will walk through general and "other" fund balances as it relates to commitments against those balances. The intent is to ensure that Council and Departments fully understand our fiscal challenges and opportunities in concert with Council and Department initiatives. The fiscal discussion will occur via power point. In preparation, the enclosed packet includes the existing Fund Balance, Debt Management, and Investment policies. RESOLUTION NO. 2011-165 RESOLUTION COMMITTING REVENUES AND FUND BALANCES IN ACCORDANCE WITH GASB 54 WHEREAS, the Governmental Accounting Standards Board ( "GASB ") has adopted Statement 54 ( "GASB 54 "), a new standard for governmental fund balance reporting and goven fund type definitions that became effective in governmental fiscal years starting after June 15, 2010, and WHEREAS, the City Council of the City of Cottage Grove elects to implement GASB 54 requirements, and to apply such requirements to its financial statements beginning with the current (January 1, - December 31, 2011) fiscal year; and WHEREAS, GASB 54 requires the governing body to formalize the commitment of the specific revenue sources to specified purposes. NOW THEREFORE BE IT RESOLVED, by the City Council of the City of Cottage Grove that effective December 31, 2011, the City's Unassigned General Fund Balance will be maintained to provide sufficient working capital and margin of safety to address local emergencies without borrowing, but no less than 55% of the General Fund operating expenditures. In the event that the amount of unassigned fund balance falls above or below the desired range, the City Administrator shall report such amounts to the City Council as soon as practical after the end of the fiscal year. Should. the actual amount of unassigned fund balance fall below the desired range, the City shall create a plan to restore the appropriate levels. Should the actual amount of unassigned fund balance rise above the desired range, any excess funds will be transferred and committed to other funds as follows: a) Outstanding Debt Reduction fund - 35% b) Equipment Replacement Fund 25% c) Building Replacement Fund 15% e) Future Pavement Management Projects 10% BE IT FURTHER RESOLVED that when it is appropriate for fund balance to be assigned, the City Council delegates that authority to the City Administrator or the Finance Director. BE IT FURTHER RESOLVED that the specific revenue source of each special revenue fund and the specific purposes for which they are committed are as follows: Fu nd Specific Re venue Source Committed For Recycling Washington County Recycling activities Storm Water Maintenance Charges for Service Storm Water Maintenance lee Arena. 'faxes and User Fees Ice Arena Operations AND BE IT FURTHER RESOLVED that any unrestricted fund balance in any special revenue fund is committed by the council to the specific purpose of that fund. Adopted by the City Council of the City of Cottage Grove this 21" day of December 2011. By x o $ 'ley ay ' AT TEST: A Jf Caron Stransky, City Clerk RESOLUTION NO. 2010-013 A RESOLUTION ESTABLISHING DEBT MANAGEMENT POLICY WHEREAS, a Debt Management Policy provides the general framework for the planning and evaluating debt proposals in the course of City operations; WHEREAS, the City Council recognizes there are no absolute rules or easy formulas that can substitute for a thorough review of all information affecting the City's debt position. Debt decisions should be the result of deliberative consideration of all factors involved; NOW, THEREFORE BE IT RESOLVED, by the City Council of the City of Cottage Grove, Minnesota, to approve the following debt management policy for the City of Cottage Grove: 1. General Debt Policy a. The City shall seek to maintain and improve its current AA2 /AA+ bond rating so borrowing costs are minimized and access to credit is preserved. It is imperative that the City demonstrate to rating agencies, investment bankers, creditors and taxpayers that City officials are following a prescribed financial plan. b. Every bond issue proposal will be accompanied by an analysis of the sources and uses of funds for the project to be financed with the bond proceeds and sources of funding for the repayment of the bonds. The analysis will reflect how the new bond will fit with the City's existing debt structure, c. The City will confine long -term borrowing to capital improvements or projects that cannot be funded from operating revenues and /or a reasonable amount of other resources. The City has developed a closed debt service fund which acts as a bridge to internally finance construction costs until property owner assessments or other third party revenues are received. Internal financing should significantly reduce the City's need to sell bonds and incur undue interest costs. d. Bonds will be sold on a competitive basis unless it is in the best interest of the City to conduct a negotiated sale. Competitive sales will be the preferred method. Negotiated sales may occur when selling bonds for a RESOLUTION NO. 2010-013 PAGE 2 defeasance of existing debt, for current or advanced refunding of debt or for other appropriate reasons. 2. Taxpayer Equity a. Cottage Grove's property taxpayers and citizens who benefit from projects financed by bonds should be the source of the related debt service funding. This principle of taxpayer equity should be a primary consideration in determining the type of projects selected for financing through bonds. Furthermore, the principle of taxpayer equity shall be applied for setting rates in determining net revenues for bond coverage ratios. 3. Uses a. Acceptable uses of bond proceeds can be viewed as items which can be capitalized. Non - capital furnishings and supplies will not be financed from bond proceeds. b. Bond proceeds should be limited to financing the costs of project planning and design, land acquisition, buildings and other permanent structures, attached fixtures, equipment acquired as part of the construction project and /or other costs as permitted by law. Utility revenue bond proceeds may be used to establish a debt service reserve as allowed by State law. Refunding bond issues designed to restructure currently outstanding debt are'an acceptable use of bond proceeds c. The City will not use short term borrowing to finance operating needs except in the case of an extreme financial emergency which is beyond its control or reasonable ability to forecast. Recognizing that bond issuance costs add to the total interest costs of financing; bond financing should not be used if the aggregate cost of projects to be financed by the bond issue does not exceed $1,000,000. d. The City will not issue "interest only debt. 4. Decision Analysis a. Whenever the City is contemplating a possible bond issue, information will be developed concerning the following categories commonly used by rating agencies assessing the City's creditworthiness. The subcategories are representative of the types of items to be considered. This information will be presented by the Finance Director to the City Administrator and City Council. i. Debt Analysis 1. Debt capacity analysis RESOLUTION NO. 2010-013 PAGE 3 2. Purpose for which debt is issued 3. Debt structure 4. Debt burden 5. Debt history and trends 6. Adequacy of debt and capital planning 7. Obsolescence of capital plant ii, Financial Analysis 1. Stability, diversity, and growth rates of tax or other revenue sources 2. Trend in assessed valuation and collections 3. Current budget trends 4. History and long term trends of revenues and expenditures 5. Fund balance status and trends in operating and debt funds 6. Cash flow projections iii. Economic Analysis 1. Population and demographics 2. Economic environment and trends b. The City may use the services of qualified internal staff and outside advisors to assist in the analysis, evaluation and decision process, including bond counsel and financial advisors. This policy is intended to insure that potential debt complies with all laws and regulations, as well as sound financial principles. 5. Debt Planning a. General obligation bond borrowing should be planned and the details of the plan must be incorporated in the City's Five Year Capital Improvement Plan. b. General obligation bond issues should be included in at least two Capital Improvement Plans proceeding the year of the bond sale. The first inclusion should contain a general description of the project, its timing and financial limits; subsequent inclusions should become increasingly specific. c. The annual debt levy required by the total of all City debt shall not comprise more than 15% of annual General Fund operating expenses. 6. Communication and Disclosure a. Financial reporting and disclosure requirements will be fulfilled annually according to the disclosure guidelines of the Government Finance Officers _._ Association of the U.S. and Canada. RESOLUTION NO. 2010-013 PAGE 4 7. General Obligation Bonds a. Every project proposed for financing through general obligation debt should be accompanied by a full analysis of the future operating and maintenance costs associated with the project. b. Bonds cannot be issued for a longer maturity schedule than a conservative estimate of the useful life of the asset to be financed. The City will attempt to keep the average maturity of general obligation bonds at or below 20 years. c. The City will limit the total of its net (general obligation) debt to 4.80% of full market value of properties in the City. 8. Revenue Bonded Debt a. It will be a long term goal that each utility or enterprise will ensure future capital financing needs are met by using a combination of current operating revenues and revenue bond financing. b. Each utility or enterprise should provide adequate debt service coverage. A specific factor is established by the City Council that the net of enterprise revenues and expenditures (exclusive of depreciation /amortization) shall be a minimum of 1.25 times the annual debt service costs. Passed this 3 rd day of February 2410. L ,1"/ 1Mw6 / n Bailey, Mayor Attest: Caron M. Stransky, City Clerk RESOLUTION NO. 2010-012 A RESOLUTION AMENDING THE INVESTMENT POLICY WHEREAS, the City's investment policy approved by the City Council of the City of Cottage Grove at their November 4, 1998 meeting establishes guidelines which the City will use in the investment of funds; NOW, THEREFORE, BE IT RESOLVED, by the City Council of the City of Cottage Grove, Minnesota, to amend the City's Investment Policy, as follows: 1. Purpose and Scope a. The purpose of this policy is to establish specific guidelines which the City of Cottage Grove will use in the investment of City funds. The fundamental objectives for the investment of City funds include protection of principal, liquidity for maintenance of adequate cash flow and an acceptable rate of return on all funds under the scope of this policy. b. This policy applies to the investment of all funds controlled by the City of Cottage Grove, excluding the investment of employees' retirement funds. c. Pooling of funds: Except for cash in certain restricted and special funds, the City will consolidate cash and reserve balances from all funds to maximize investment earnings and to increase efficiencies with regard to investment pricing, safekeeping and administration. Each individual fund cash balance will continue to be reported separately in the general ledger system. Investment income will be allocated to the various funds based on their respective participation and in accordance with generally accepted accounting principles. 2.. Objectives a. The three main objectives of all investment activity are protection of principal (capital), maintenance of liquidity and optimization of return. Of all these, safety of capital is primary. Funds will be invested to gain the highest investment return with the lowest risk of capital loss, while meeting daily cash flow demands of the City and conforming to all federal state and local statutes governing the investment of public funds. b. Investments will be undertaken in a manner which seeks to ensure the preservation of capital in the overall portfolio. Both credit and interest rate risk will be mitigated. i. The City will minimize credit risk, which is the risk of loss due to the failure of the security issuer or backer, by limiting investments to those types outlined in this policy, pre - qualifying brokers /dealers which do business with the City and diversifying the portfolio to minimize the potential losses from any one type security or any one individual issuer. RESOLUTION NO. 2010-012 PAGE 2 ii. The City will also minimize interest rate risk, which is the risk that the market value of securities in the portfolio will fall due to changing market rates, by structuring the portfolio to meet cash flow requirements. Extended maturities may be utilized to take advantage of higher yields; however no more than 25% of total investments should extend beyond 5 years and in no circumstance should any extend beyond 10 years. c. The City will practice a buy and hold investing philosophy. Once an investment is purchased, it will be held until maturity. In the unlikely circumstance that unanticipated cash demand may require it an investment may be sold to cover immediate cash needs. In order to facilitate such a transaction, the majority of securities within the portfolio should have active secondary or resale markets. 3. Delegation of Authority a. Management of the City's investment portfolio is delegated by the City Council to the Finance Director. The Finance Director shall establish procedures for the operation of the investment program consistent with this policy, shall be responsible for all transactions undertaken and shall establish a system of internal controls designed to prevent loss from fraud and employee error. 4. Prudence a. Investments shall be made with judgment and care under prevailing circumstances, 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 own capital as well as the probable income to be derived. This standard shall be applied in the context of managing the overall portfolio. b. Investment personnel acting in accordance with this policy and with Minnesota Statutes 118A.01 - 118A.06 and exercising due diligence shall be relieved of personal responsibility for an individual security's credit risk or market price changes provided that reasonable action is taken to control adverse developments and unexpected deviations are reported in a timely manner. c. Employees involved in the investment process shall refrain from personal business activity which would conflict with the proper execution of the investment program or which could impair their ability to make impartial investment decisions. RESOLUTION NO. 2010-012 PAGE 3 5. Authorized Investments a. Consistent with Minnesota Statutes Section 118A.04, the following is a listing of the instruments the City will be authorized to invest in: i. U.S. Treasury obligations which carry the full faith and credit guarantee of the United States government and are considered to be the most secure instruments available ii. U.S. government agencies which are created and supervised by the federal government iii. Certificates of Deposit (CD) which are negotiable or non - negotiable instruments issued by commercial banks and insured up to $254,000 each by the Federal Deposit Insurance Corporation (FDIC) iv. Commercial paper, rated in the highest tier (Al, P1) by a nationally recognized rating agency and maturing in 270 days or less v. General Obligations of the State of Minnesota or any of its municipalities. vi. Bankers Acceptances vii. Repurchase agreements whose underlying purchased securities consist of the aforementioned instruments viii. Money market mutual funds which invest in authorized instruments according to Minnesota Statutes 118A.05 ix. Local government investment pools developed through joint powers statutes or other intergovernmental agreement legislation (such as the 4M fund) b. The City will not invest in: i. Reverse repurchase agreements; ii. Mortgage -Back securities iii. Future contracts iv. Options v. Guaranteed investment contracts vi. Derivatives 6. Authorized Financial Institutions, Depositories & Broker /Dealers a. The City of Cottage Grove will maintain a list of financial institutions, depositories and broker /dealers authorized to provide investment services to the City. Institutions will meet the following criteria: i. Minimum capital requirement $10,000,000 and at least five years of operations and /or "primary" dealers or regional dealers that qualify under Securities and Exchange Commission (SEC) Rule 15C3 -1 (uniform net capital rule) . ii. Located in the .State of Minnesota b. An annual review of the financial condition and registration of all qualified financial institutions and broker /dealers may be conducted by the Finance RESOLUTION NQ. 2014 -012 PAGE. 4 Director. Information requested may include the following: audited financial statements, proof of National Association of Securities Dealers (NASD) certification, and proof of state registration. c. All brokers will provide to the City of Cottage Grove annually a Broker /Dealer Certification form as required by law, outlining their intention to do business with the City in accordance with Minnesota Statutes and the City's investment policy. All financial institutions shall agree to undertake reasonable efforts to preclude imprudent transactions involving City funds. 7. Diversification a. It is the policy of the City of Cottage Grove to diversify its investment portfolio by type and maturity of investment purchased. This will eliminate risk of loss resulting from over concentration of assets in a specific maturity, issuer or class of securities. b. Portfolio maturities will be staggered and maturities selected will provide for stability of income and liquidity. c. Primary guidance in the diversification will be the annual cash flow requirements of the City. 8. Reporting a. The Finance Director will provide at a minimum a semi - annual report to the investment committee. In addition to the finance Director, the investment committee consists of the Mayor, a member of City council, the City Administrator and the City's financial advisor. This report includes the current status of the City's investment portfolio. The investment report includes the following information: i. Type of investment ii. Financial institution involved in the transaction iii. Yield iv. Purchase date and Maturity date V. Amount invested b. An annual report on the investment portfolio and its performance will be available within 30 days of fiscal year end. This report will reflect the annual activity of the portfolio, return on investment, gains or losses due to marking to market value and percentage breakdown of investments by type and maturity. RESOLUTION NO. 2010-012 PAGE 5 Passed this 3 day of February 2010. r Attest: �. 41a Caron M. Stransky, City Clerk