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HomeMy WebLinkAboutResolutions - 2021-23 - Financial Management Policy, establishing guidelines and procedures intended to serve as a blueprint to maintain fiscal stability, and provide guidance, Internal Control, Oversight of any financial transaction - 10/19/2021City of East Wenatchee Resolution 2021-23 Page 1 of 2 Retain Resolution until no longer needed for City-business, then transfer to Washington State Archives (GS50-05A-16 Rev. 1) City of East Wenatchee, Washington Resolution No. 2021-23 A Resolution of the City of East Wenatchee, Washington, establishing guidelines and procedures intended to serve as a blueprint to maintain fiscal stability, and provide guidance to all stakeholders whether they be directly involved in financial processes, internal control oversight, or any financial transaction. 1. Alternate format. 1.1. Para leer este documento en otro formato (español, Braille, leer en voz alta, etc.), póngase en contacto con el vendedor de la ciudad al alternateformat@eastwenatcheewa.gov, al (509) 884-9515 o al 711 (TTY). 1.2. To read this document in an alternate format (Spanish, Braille, read aloud, etc.), please contact the City Clerk at alternateformat@eastwenatcheewa.gov, at (509) 884-9515, or at 711 (TTY). 2. Authority. 2.1. RCW 35A.11.020 and RCW 35A.12.190 authorize the City Council to organize and regulate its internal affairs and to define the powers, functions and duties of its officers and employees. 3. Recitals. 3.1. The City Council of the City of East Wenatchee desires to develop a financial management policy that modernizes the City’s financial policies and aligns them with current government financial management best practices. THE CITY COUNCIL OF THE CITY OF EAST WENATCHEE DO RESOLVE AS FOLLOWS: 4. Authorization. The City Council adopts the Financial Management Policy attached as the official policy relating to the management of its financial resources. City of East Wenatchee Financial Management Policy The financial management policy of the City of East Wenatchee (City) is established by the City Council. The policy is designed to provide guidance to all stakeholders whether they be directly involved in financial processes, internal control oversight, or any financial transaction. The financial management policy is intended to serve as a blueprint to achieve fiscal stability required to accomplish the City’s Strategic Plan, all other comprehensive and master plans, and City Council goals. The City Council sets forth the authorities, responsibilities, and accountability requirements of those participating in the operations of East Wenatchee City government at all levels of the organization and endeavors to:  Set forth financial standards.  Reduce financial risks to withstand the ups and downs of local and regional economic environments.  Maintain appropriate financial capacity for present and future levels of service.  Ensure the legal use of financial resources through an effective system of internal controls.  Provide financial transparency to the public. General Financial Goals  Ensure the financial integrity of the City.  Manage the financial assets in a sound and prudent manner.  Improve detailed financial information for decision makers at all levels: o Policy makers as they contemplate decisions that affect the City on a long-term basis. o Managers as they implement policy on a day-to-day basis.  Maintain and further develop programs to ensure the long-term ability to pay all operational and capital costs necessary to provide the level and quality of service required by the citizens.  Maintain a spirit of openness and transparency while being fully accountable to the public for the City’s fiscal activities. Finance Committee A standing Finance Committee exists that will meet as needed on the same day as normally scheduled City Council meetings. The Committee exists of the Finance Director, Mayor and 3 Councilmembers appointed by the mayor annually. Other Department Heads attend the committee, as needed. The Finance Committee reviews the budget, reviews unbudgeted financial requests, assists with financial policy development, and discusses many other City- wide financial related items. Primary Budget Responsibility The City Council has final responsibility for approving the annual Operating Budget and appropriating funding for the capital needs of the City of East Wenatchee. The City’s budget is adopted at the Fund level and monitored on the department level in the General Fund. The Mayor and the Finance Department have the primary responsibility for bringing the budget forward for Council consideration. Department Heads will have the primary responsibility for proposing programs, recommending funding levels, analyzing position expense distributions and formulating budget proposals for implementing service programs in accordance with established City Council goals and directives. The Mayor and Department Heads are responsible for the overall management of their respective budgets through monitoring, identifying and correcting any budgetary problems as they arise. The Finance Department will assist the Department Heads as needed. At the direction of the Mayor, the Finance Department coordinates the overall preparation and administration of the City’s budget in compliance with applicable State of Washington statutes. The Finance Department provides the budget calendar and revenue budget estimates, assists department staff in identifying budget problems and formulating alternative solutions, and prepares and distributes the final budget documents. Operating Budget Policies The objective of the operating budget is to pay for all current expenditures with current revenues. The City will endeavor to avoid budgetary allocations that balance current year expenditures at the expense of meeting future years’ expenses. Beginning fund balance sources may be used to fund capital improvement projects or other one-time, non-recurring expenditures if the fund reserve targets are met. The City of East Wenatchee defines a balanced budget as current annual revenues (including fund balances) are equal to or greater than current annual budgeted expenditures. The City of East Wenatchee further defines a structurally balanced budget as current on-going revenues (without including fund balances) as equal to or greater than current on-going operational expenses. The City will not use easily identifiable one-time revenues for operations. Revenue Policies The City will strive to maintain as diversified and stable a revenue system as permitted by state law to shelter it from short-run fluctuations in any one revenue source. The revenue mix should combine flexible and inflexible revenue sources to minimize the effect of an economic downturn. Because revenues, especially those of the General Fund and Street Fund, are sensitive to both local and regional economic activities, revenue estimates provided to the City Council shall be conservative. Conservative can be described as not exceeding the prior 3-year average growth unless its known that the City is receiving large revenue influxes (i.e., annexation, construction projects, etc.). The City will estimate its annual revenues by an objective, analytical process using best practices as defined by the Government Finance Officers Association or other reliable professional organizations. Economic assumptions will be based on reliable and relevant sources such as the Washington State Office of Forecast Council. The City will establish all utility and user fees at a level related to the cost of providing the service and within policy parameters established by the City Council. Retail sales and use tax revenue will be reviewed for projects within City limits that are projected to exceed $2 million. The revenue from these projects will be considered one-time revenues and should not be used to support recurring operations. The Finance Department may opt to place these one-time revenues into a separate accounting reporting line to differentiate them from normally occurring sales and use tax revenues. To adequately deal with short-term (anticipated duration of less than one year) economic downturns and temporary gaps in cash flow, expenditure reductions or restrictions may be imposed by the Mayor and/or the City Council. Alternatively, the Council may approve a one- time drawdown of the Rainy-Day Fund to address temporary downturns in City revenues. Interfund loans authorized by the Council may be utilized to cover temporary gaps in cash flow. To address long-term (greater than one year) revenue downturns, revenue forecasts will be revised, and expenses will be reduced to conform to the revised long-term revenue forecast, and new sources of revenue or revenue increases will be considered. Deficit financing and borrowing to support ongoing operations will not be considered as an acceptable policy of the City as a response to long-term revenue shortfalls. All potential grants shall be carefully examined for matching requirements. Some grants may not be accepted if the local matching funds cannot be readily identified or justified. Grants may also be rejected if the financial obligation of the programs must be continued with local resources after grant funds are exhausted. Responsibility for the administration of grants is the joint responsibility of the applying department and Finance Department. All grants, regardless of the amount, must be reviewed by the Finance Department prior to pursuit of the funding to ensure that financial statement preparation and grant reporting requirements are met. Expenditure Policies Operating expenditures, within funds, must be supported by the operating revenues generated by that fund. Expenditures will not expand beyond the City’s ability to pay for them with current revenues. The City will take immediate corrective actions if at any time during the fiscal year expenditure and revenue re-estimates are such that an operating deficit is projected at year-end. Corrective actions can include a hiring freeze, expenditure reductions, fee increases or use of reserves. Long-term debt or bond financing shall not be used to finance current operating expenditures. Emphasis will be placed on improving individual and work group productivity rather than adding to the work force. The City will invest in technology and other efficiency tools to maximize productivity. The City will hire additional staff only after the need for such positions has been demonstrated and documented. The City will make every effort to maximize any discounts offered by creditors/vendors. Staff will also use competitive bidding per established rules to attain the best possible price on goods and services. Minimum Fund Balance (Reserves) Fund balance is an approximate measure of liquidity. Reserves are a cornerstone of financial flexibility and provide the City of East Wenatchee with options to respond to unexpected issues and provide a buffer against minor fiscal challenges. This section defines thresholds and descriptions for fund balances, reserves, and retained earnings of all funds of the City of East Wenatchee. It is the intent of the City to provide a stable financial environment for which its citizens can depend on a consistent and quality level of service and for planned future expenditures. The Finance Director is responsible for monitoring reserve levels and reporting current and projected reserves during each budget development cycle. The City’s minimum fund balance goal for each fund is as follows - Operating Funds:  The General Fund (001) will maintain a minimum unassigned/unrestricted/uncommitted fund balance of 15% of recurring expenditures to ensure adequate cash flow. o The General Fund will also maintain a minimum of $750,000 Rainy Day restricted fund balance to be used only with Council approval through already established approval processes. The reserve will be established and replenished from one-time revenues not committed for other purposes, excess operating reserves or by budgetary action. Yearly additions of $50,000 will be made to the Rainy-Day Fund until it reaches a maximum of $1,000,000.  The Street Fund (101) will maintain a minimum unassigned/unrestricted/uncommitted fund balance of 15% of recurring expenditures to ensure adequate cash flow.  The Events Board Fund (117) will maintain a minimum fund balance of 15% of the average of the prior 3 full years’ expenditures plus 3%.  The Equipment Rental & Replacement Fund (501) will maintain a reserve balance adequate to replace equipment based on the schedule developed by Public Works. Non-Operating Funds:  The Community Development Grants Fund (102) is a grant fund that is reliant on federal reimbursement for expenses related to the CDBG program. It is not practical or necessary to have a minimum fund balance for this fund.  The Transportation Benefit District Fund (105) will maintain a minimum fund balance of 15% of the average of the prior 3 full years’ expenditures plus 3%.  The Library Fund (112) will maintain a minimum fund balance of 50% of recurring expenditures to ensure adequate cash flow.  The Hotel/Motel Tax Fund (113) will maintain a minimum fund balance of 15% of the average of the prior 3 full years’ expenditures.  The Criminal Justice Fund (116) does not have a minimum fund balance. The monies in this fund get transferred to the Equipment Rental & Replacement Fund to help with the annual replacement of police vehicles.  The Bond Redemption Fund (202) does not have a minimum fund balance. This fund just needs enough resources in it annually to pay the City’s current debt obligations.  The Street Improvements Fund (301) tends to be volatile due to its reliance on grant funding, unknown/various matching costs, cost overruns and the size and scope of street projects. $200,000 is a reasonable starting point for an ending fund balance with 3% annual increases after that.  The Capital Improvements Fund (314) will maintain a minimum fund balance of 15% of the average of the prior 3 full years’ expenditures plus 3%.  The Stormwater Fund (401) will maintain a minimum fund balance of 15% of recurring expenditures plus $200,000 with 3% annual increases for emergency capital improvements. The Finance Director will revise this policy as often as needed when new funds are added to the City’s financials. Replenishment of Reserves: Reserve balance requirements are evaluated at the end of the fiscal year. If the reserve balances of any fund fall below the requirements of this policy, remedial action will be taken to resolve the variance during the next budget cycle. Excess Reserves: Reserves above the targeted reserve levels may be used for new expenditures, with emphasis on one-time uses that achieve future operating cost reductions, capital asset investments with a long-term benefit or prepaying existing debt. Use of excess reserves will be determined by the City Council through the next available budget cycle or budget amendment.