HomeMy WebLinkAboutCC 13 GEN'L & WTR FDS 02-19-91-)ATE: FEBRUARY 14, 1991
CONSENT CALENDAR NO. 13
2-19-91
Inter - Com
TO: WILLIAM A. HUSTON, CITY MANAGER
FROM: RONALD A. VAULT, DIRECTOR OF FINANCE
SUBJECT: GENERAL FUND AND WATER ENTERPRISE FUND BALANCE POLICY
RECOMMENDATION:
Adopt the attached policy establishing the General Fund and Water
Enterprise Fund Balance Policy as recommended by the City of Tustin
Audit Committee.
Ronald A. Nault
Director of Finance
Attachment
RAN: 1s
a:balance.pol
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--`1 ATE:
JANUARY 211 1991
TO:
HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
FROM:
CITY OF TUSTIN AUDIT COMMITTEE
SUBJECT:
GENERAL FUND AND WATER ENTERPRISE FUND BALANCE POLICY
In our review of the current Comprehensive Financial Report, it
came to our attention that there was an additional $1.4 million in
supplemental appropriations to the General Fund balance. The
Committee feels that without thoughtful consideration of the impact
of supplemental appropriations on fund balance, adequate reserves
may not be available to the City in the event of a catastrophic
occurrence.
In that regard, the Audit Committee has reviewed the current City
policy of setting target General Fund and Water Enterprise Fund
balances. The current policy for the General Fund is a target of
15 percent of General Fund expenditures. This is arrived at by
calculating cash flow needs for approximately 12 weeks of continual
operations during a catastrophic occurrence that would severely
impact the revenue stream of the City.
A formal policy for establishing the fund balance for the Water
Enterprise has not been adopted but generally it is calculated
similar to the General Fund. However, consideration is given to
the potentially significant cost involved to reinstate water
service as a result of a catastrophic event and the disruption of
revenues while the infrastructure is nonfunctional.
We are protected to a limited extent by insurance and state and
federal programs that may reimburse the City for costs incurred due
to a catastrophe. Reimbursement from state and federal programs
will be subject to the availability of funds, and the City can
expect the reimbursement process to be drawn out over an extended
period of time.
The Audit Committee recommends to the City Council that a formal
policy be adopted that establishes target reserves for the General
Fund and the Water Enterprise along the following guidelines:
Policy Statement:
It shall be the policy of the City Council of the City of Tustin,
to adopt an Annual Budget that will reflect an operating fund
balance for the General and Water Enterprise Funds of at least
_ fifteen (15) percent. It is deemed to be of paramount importance
to maintain the balance of unappropriated reserves in the General
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January 23, 1991
Fund of not less than ten (10) percent of the annual appropriated
expenditures and a Water Enterprise balance of unappropriated
reserves of not less than ten (10) percent of the annual
appropriated expenditures, with a target reserve for catastrophic
restoration equal to ten (10) percent of investment in property,
plant and equipment.
General Fund Target Reserve Calculation:
• 15 percent of the total expenditures as presented in the
Annual Proposed Budget.
• Two thirds of the target reserve will be set aside as a
reserve for catastrophic contingency. (10 percent)
Water Enterprise Target Reserve Calculation:
• 15 percent of the total expenditures as presented in the
Annual Proposed Budget.
_
10 percent of the total investment in property, plant and
equipment be set aside as a reserve for catastrophic
contingencies. The Committee realizes that this target
amount could take a period of years to achieve because of
the significant investment in the infrastructure of the
enterprise system. The Committee recommends the build up
of this reserve take place over a period of eight to ten
years.
The Audit Committee feels that the proposed policies will provide
a means of planning for the unknown that can devastate an
organization if not addressed in a well thought out,
straightforward manner.
Walter T. Sullens
Audit Committee Chairman
RAN: WTS:1s
a:genfund.bal