CR 09-088 Establish Legislative Policy 6-G, Fund Balance PolicySeptember 16, 2009
City of Hopkins
ESTABLISH LEGISLATIVE POLICY 6 -G
FUND BALANCE POLICY
Proposed Action
Council Report 2009 -088
Staff recommends adoption of the following motion: Move to Adopt Resolution 2009 -056 establishing
Legislative Policy 6 -G Fund Balance Policy.
Adoption of this motion will create Policy 6 -G Fund Balance Policy.
Overview
The City of Hopkins currently has an informal Fund Balance Policy that sets forth a targeted General Fund,
fund balance. Bond rating firms when reviewing cities financial condition have been focusing on certain
financial policies that are recommended to have in place. One of the policies they inquire on is a fund
balance policy.
The importance of having a fund balance policy for the General Fund is that it sets forth a target fund balance
for cash flow purposes and procedures that will be put in place if the fund balance level is greater or less than
the target. Having a formal fund balance policy indicates to bond reviewers and rating agencies that we
consciously and consistently reviewing the General Fund fund balance level and taking appropriate action to
maintain the target level. This is important as it relates to setting the annual budget.
Primary Issues to Consider
• Appropriate Fund Balance Level
• Policy as it relates to establishing annual budget
Supporting Information
• Resolution 2009 -056
• Legislative Policy 6 -G
Christine M Harkess, CPA, CGFM
Finance Director
Financial Impact: $ none Budgeted: Y/N n/a N Source:
Related Documents (CIP, ERP, etc.): Notes:
CITY OF HOPKINS
Hennepin County, Minnesota
RESOLUTION NO. 2009-056
A RESOLUTION AMENDING LEGISLATIVE POLICY MANUAL,
ESTABLISHING CHAPTER 6 -G FUND BALANCE POLICY
WHEREAS, The City Staff has determined that establishing a policy for an appropriate fund
balance level for the General Fund would benefit the city as it sets its annual budget; and
WHEREAS, no formal policy currently exists defining an appropriate fund balance level for the
General Fund;
NOW THEREFORE BE IT RESOLVED, that the City Council of the City of Hopkins hereby
establishes Legislative Policy 6 -G, Fund Balance Policy.
EFFECTIVE DATE: This amendment will go into affect on October 21, 2009.
Adopted by the City Council of the City of Hopkins this 20th day of October, 2009.
Eugene Maxwell, Mayor
ATTEST:
Terry Obermaier, City Clerk
POLICY 6 -G
FUND BALANCE POLICY
1. PURPOSE
1.01 The City believes that sound financial management principles require that sufficient
funds be retained by the City to provide a stable financial base at all times. To retain
this stable financial base, the City needs to maintain a General Fund Balance
sufficient to fund all cash flows of the City, to provide financial reserves for
unanticipated expenditures and /or revenue shortfalls of an emergency nature, and to
provide funds for all existing encumbrances.
1.02 The following individual items shall constitute the City General Fund Balance:
A. Reserved Fund Balance: Reserved fund balance consists of portions of fund
balance that are either legally restricted to a specific future use or are not available
for appropriation or expenditure.
B. Unreserved Fund Balance: Unreserved fund balance is often subdivided into
designated and undesignated portions. Designated funds are held for future
financial resource use, such as a specific project. Undesignated funds represent
expendable available financial resources that can be used to meet contingencies
and working capital requirements.
a. Unreserved, Undesignated Fund Balance — Funds not otherwise reserved or
designated as required above represent balances available for appropriation at
the discretion of the Council. However, the Council will make every effort to
use these undesignated funds for the following purposes (listed in order of
priority):
• Increase Reserved Fund Balances as deemed necessary.
• Increase Unreserved, Designated Fund Balances as deemed necessary.
• Transfer to the Capital Improvement Fund.
• Transfer to the Equipment Replacement Fund.
• Use as beginning cash balance in support of annual budget.
The Board recognizes that any such funds should be appropriated for non - recurring
expenditures as they represent prior year surpluses that may or may not materialize in
subsequent fiscal years
2. POLICY
2.01 The General Fund shall maintain an unreserved fund balance equivalent to a
minimum of five (5) months or 42% of the prior fiscal year expenditures.
Legislative Policy Manual - Chapter 6 -G
3. MONITORING AND REPORTING
3.01 The City Manager and Finance Director shall annually prepare a report documenting
the status of the fund balance with this policy and present to the Council in
conjunction with the development of the annual budget. Should the report disclose
there are unreserved, undesignated funds available; a recommendation for use of said
funds shall be presented to the Board in the report.
4. REPLENISHMENT OF SHORTFALL
4.01 Should the Unreserved Fund Balance amount fall below the targeted level, the City
Council must adopt a plan to restore this balance to the target level within 24 months.
If restoration of the reserve can not be accomplished within such period without
severe hardship to the City, then the Council will establish a different time period.
Established 10/20/2009
City of Hopkins
Legislative Policy Manual - Chapter 6 -G 2