Budget and Reserve Policy Item #32

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• Revenue estimates will be conservative to avoid a resource shortfall for planned service delivery. • The City will continue to pursue internal operational efficiencies and strategies, such as technology modernization, to minimize City costs and enhance the accessibility of City services. • All proposals for new or upgraded capital facilities must include estimated costs to operate, maintain, and replace the facilities. • To assist the City Council with decision -making, staff shall annually prepare a minimum ten-year projection to identify long-term impacts to the General Fund budget. Reserve Requirement To mitigate risk and support cash flow, the General Fund will maintain an Operating Reserve of the Unrestricted Fund Balance equivalent to a minimum of 18%of annual recurring revenue. As recurring revenue increases, so shall the Operating Reserve. A documented plan to replenish the Operating Reserve must accompany any City Council authorized use of the Operating Reserve, pursuant to the guidelines for use of non -recurring resources outlined above. A plan for replenishment may include reduction of expenditures, one-time money, favorable budget variances, and/or new revenue sources. INTERNAL SERVICE FUNDS Background The City utilizes Internal Service Funds to administer and account for centralized services provided by one City department/division to another City department/division. Examples include building maintenance, general liability insurance, and information technology. The centralized service divisions fund operations and equipment replacement with cost -recovery charges to the receiving department budget. Internal Service Fund Reserves provide a funding source for capital asset replacement (e.g. fleet vehicles), actuarial determined liabilities (e.g. workers compensation), and an operational cushion for unanticipated or extraordinary costs. This policy establishes general guidelines for target Reserve balances and cost -recovery rate structure to fund current operations and Reserve replenishment. Target Reserve Balances Internal Service Fund Target Central Services (mail, reprographics) 100% of capitalized equipment cost +20% of annual operating costs Building Maintenance 100% of annual operating costs due to high risk of aged facilities Equipment Replacement for Vehicles 100% of the cost of capitalized equipment Fleet Vehicle Maintenance 20% of annual operating costs Stores & Property Control (fuel and warehouse inventory) 20% of annual operating costs Liability & Property Insurance 80% of liability, actuarially determined every two years Employee Group Insurance None, as this fund serves an accounting purpose only with zero net fiscal impact. Workers Compensation 80% of liability, actuarially determined every two years Information Services 100% of capitalized equipment cost+ 20% of annual operating costs City Yard 20% of annual operating costs Public Works Engineering & Project Management None, as this fund serves an accounting purpose only with zero net fiscal impact. Public Works Administration & Planning None, as this fund serves an accounting purpose only with zero net fiscal impact. Budget and Reserve Policy, March 2021 Page 2