Comprehensive Adopted Financial Policies
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The following City financial policies adopted by Resolution by the City Council establish the framework for Scottsdale’s overall fiscal planning and management. They set forth guidelines against which current budgetary performance can be measured and proposals for future programs can be evaluated. Scottsdale’s publicly adopted financial policies show the credit rating industry and prospective investors (bond buyers) the City’s commitment to sound financial management and fiscal integrity. The financial policies also improve the City’s fiscal stability by helping City officials plan fiscal strategy with a consistent approach. Adherence to adopted financial policies promotes sound financial management, which can lead to improvement in City bond ratings and lower cost of capital. The FY 2011/12 adopted financial policies are as follows:
1. All divisions will participate in the responsibility of meeting policy goals and ensuring long-term financial health. Future service plans and program initiatives will be developed to reflect current policy directives, projected resources and future service requirements. In order to ensure compliance with policy, sunset provisions will be required on all grant program initiatives and incorporated into other service plans, as appropriate.
2. The budget process is intended to weigh all competing requests for City resources, within expected fiscal constraints. Requests for new, ongoing programs made outside the budget process will be discouraged.
3. Annual budgets shall include documentation that programs met intended objectives (“effectiveness criteria”) and provide value in terms of dollars allocated (“efficiency criteria”).
4. The budget shall be considered balanced if all sources of revenue, as estimated, are equal to, or exceed, the total of amounts proposed to be used in the operating budget for the current fiscal year, by fund. To the extent unencumbered balances from the preceding fiscal year are required to achieve a balanced budget, use of unencumbered balances from the preceding fiscal year will be only as authorized by City Council.
5. The Budget Review Commission is responsible for reviewing the operating budget (division and program/service funding); the capital budget; the revenue forecast, taxes, and fees; and financial policies. (On August 29, 2011 the City Council decommissioned the Budget Review Commission.)
6. The full City Council will solicit citizen input and review the operating and capital budget recommendations from a divisional, program, and goals perspective.
7. Revenues will not be dedicated for specific purposes, unless approved by City Council or required by law. All non-restricted revenues will be deposited in the General Fund and appropriated by the budget process.
8. A diversified and stable revenue system will be developed to protect City services from short-term fluctuations in any single revenue source.
9. Balanced revenue and expenditure forecasts will be prepared annually and include a five-year plan for each fund to demonstrate the City’s ability to adapt to forecast changes in the economy, service demands, and capital improvements.
10. Enterprise (Water, Sewer, Solid Waste Management, and Aviation) user fees and charges will be examined annually to ensure that they recover all direct and indirect costs of service, debt service, provide adequate funding for future capital needs and be approved by the City Council. Any unfavorable balances in cost recovery will be highlighted in budget documents. Rate adjustments for enterprise operations will be developed pursuant to a multi-year financial plan that levels the impact of user rate changes.
11. All other user fees and charges will be examined periodically to determine the direct and indirect cost of service recovery rate, excluding voter-approved debt service. The acceptable recovery rate and any associated changes to user fees and charges will be approved by the City Council.
12. Development impact fees, as permitted by state law, for capital expenses attributable to new development will be reviewed annually to ensure that fees recover all direct and indirect development-related expenses and be approved by City Council. Any unfavorable balances in cost recovery will be highlighted in budget documents.
13. The replacement of General Fund capital equipment replacement will be accomplished through the use of a “rental” rate structure. The rates will be revised annually to ensure that charges to operating divisions are sufficient for operation and replacement of vehicles and other capital equipment (fleet, information technology infrastructure, phones and copier systems). Replacement costs will be based upon equipment lifecycle financial analysis.
14. Grant funding will be considered to leverage City funds. Inconsistent and/or fluctuating grants should not be used to fund ongoing programs. Programs financed with grant monies will be budgeted in separate cost centers, and the service program will be adjusted to reflect the level of available funding. In the event of reduced grant funding, City resources will be substituted only after all program priorities and alternatives are considered during the budget process.
15. Alternative means of service delivery will be evaluated to ensure that quality services are provided to our citizens at the most competitive and economical cost. Divisions, in cooperation with the City Manager, City Auditor and City Treasurer, will identify activities or services that could be provided over the long-term more efficiently or effectively by another source and review options/alternatives to current service delivery. The review of service delivery alternatives and the need for the service will be performed on a reasonably periodic or on an “opportunity” basis.
16. Cash and Investment programs will ensure that proper controls and safeguards are maintained. City funds will be managed in a prudent and diligent manner with an emphasis on safety of principal, liquidity, and financial return on principal, in that order.
17. A collection policy goal for all uncollectible accounts will be no more than 0.5 of one percent (1%) of revenue.
18. Any year-end General Fund operating surpluses not needed to restore contingency reserves or cover unforeseen shortfalls in the budget, but in no case less than twenty-five percent (25%) of construction privilege tax revenues, will be transferred to the General Fund Capital Improvement Program in the following fiscal year unless otherwise directed by City Council.
19. Addition of personnel will only be requested to meet program initiatives and policy directives; after service needs have been thoroughly examined and it is substantiated that additional staffing will result in increased net revenue or enhanced operating efficiencies. To the extent feasible, personnel cost reductions will be achieved through attrition.
20. Benefits and compensation will be administered in accordance with policy given by City Council. As part of a cost-containment strategy, total costs for health insurance premiums will be shared between the employer, employees and retirees. Total premiums will be evaluated on an annual basis to ensure they are reasonable and competitive and that total premiums are expected to provide adequate funding of anticipated claims and a reasonable level of loss reserves.
21. Property tax will be levied to recover; (1) anticipated general obligation debt service and (2) revenues required for the General Fund equal to (a) the prior year’s revenue plus (b) the prior year’s tort liability payments as approved by City Council. Council may also approve the legally allowable maximum of a 2 percent (2%) increase over the previous year’s maximum allowable primary levy.
21A. The City’s 5% transient lodging (bed) tax revenue will be allocated 50% towards destination marketing and the remaining non-marketing 50% will be allocated as follows:
• 24% to General Fund;
• 18% to Events/Event Development;
• 8% to Administration/Research;
• 10% to Tourism-Related Capital Projects and/or Events/Event Development or Admin/Research
(one-time use--not an ongoing annual commitment); and
• 40% to at least 4 different Tourism-Related Capital Projects not to exceed 10% on any one capital
project (one-time commitment or annual commitment that could support debt service)
At the end of each fiscal year, any unused non-marketing bed tax revenues in each of the categories (except the general fund category) will be transferred to the CIP Fund and will be available for use in future years for any of the non-marketing tourism categories (except the general fund category). Such prior year carry over funds may be allocated to approved tourism projects without the limitations applicable to current year bed tax receipts (however, because prior year carry over funds are one-time funds, they may not be leveraged and used for new debt service payments).
22. A five-year Capital Improvement Plan will be developed and updated annually, including anticipated spending as well as funding sources. Capital improvement projects are defined as purchases or construction of infrastructure or equipment which results in a capitalized asset costing more than $25,000 and having a useful (depreciable) life of five years or more. No funding commitments will be made for any project in the CIP unless the project has sufficient budget authority in the current budget year to meet the entire amount of the commitment. For each year of the CIP, total anticipated expenditures and commitments will not exceed projected starting fund balance plus total anticipated revenues for that year.
23. Pay-as-you-go Capital Improvement Plan financing should account for a minimum of 25 percent (25%) of all capital improvement projects, excluding Preservation and Enterprise, for each five-year planning period. Pay-as-you-go financing is defined as all sources of revenue other than City debt issuance, i.e., fund balance contributions, developer contributions, grants, endowments, etc.
24. Proposed capital projects will be reviewed and prioritized by a cross-divisional team regarding accurate costing (design, capital, and operating), prevention of existing infrastructure deterioration before the addition of new infrastructure and overall consistency with the City’s General Plan and City Council’s goals and objectives.
25. Future operating and maintenance costs associated with new capital improvements will be forecast and included in the Operating Budget and five-year financial plan.
26. Dedicated two tenths of percent (0.2%) privilege tax revenue for transportation improvements will be restricted to funding the planning, design, construction and acquisition costs associated with building, renovating, or enhancing capital projects for streets, highways, traffic control, and transit; and for transportation improvement operating expenses. No more than fifty percent (50%) of the privilege tax revenue for transportation improvements will be allocated to transportation improvement operating expenses.
27. General Obligation debt, which is supported by property tax revenues and grows in proportion to the City’s assessed valuation and/or property tax rate increases, will be utilized only as authorized by voters. Other types of voter-approved debt may also be utilized only when they are supported by dedicated revenue sources.
28. General Obligation debt issuances will be managed on an annual basis to match funds to Capital Improvement Plan cash flow requirements while being sensitive to the property tax burden on citizens. The City will not exceed $1.50 combined property tax per $100 assessed value unless otherwise directed by City Council.
29. Non-voter approved debt, will be utilized only when a dedicated revenue source (e.g., facility revenue and bed tax) can be identified to pay, or reimburse the City for paying, debt service expenses. City Debt Service (excluding enterprise, general obligation and preservation) costs (Municipal Property Corporation, Revenue Bond, and Contractual Debt) should not exceed five percent (5%) of the City’s current or future annual operating revenue in order to control fixed costs and ensure expenditure flexibility. The following considerations will be made to the question of pledging of project (facility) revenues towards debt service requirements:
a. The project requires monies not available from other sources.
b. Matching fund monies are available which may be lost if not applied for in a timely manner
c. Catastrophic conditions.
d. The City shall not give or loan its credit in aid of, nor make any donation, grant or payment of
any public funds, by subsidy or otherwise, to any individual, association, or corporation, except
where there is a clearly identified public purpose and the City either receives direct consideration
substantially equal to its expenditure or provides direct assistance to those in need.
30. McDowell Sonoran Preservation debt service will be funded by the dedicated 0.35% privilege tax. The City’s privilege taxes to revenue bond debt service goal will be at least 1.5:1 for senior lien debt to ensure the City’s ability to pay for preserve debt from this elastic revenue source.
31. Improvement District (ID) and Community Facility District (CFD) Bonds shall be permitted only when there is a general City benefit. ID and CFD bonds will be utilized only when it is expected that they will be issued for their full term. It is intended that ID and CFD bonds will be primarily issued for existing neighborhoods desiring improvements to their property such as roads, water lines, sewer lines, streetlights, and drainage.
a. Improvement District debt will be permitted only when the full cash value of the property, as
reported by the Assessor’s Office, to debt ratio (prior to improvements being installed) is a minimum
of 3/1 prior to issuance of debt and 5/1 or higher after construction of improvements. Should the full
cash value to debt ratio not meet the minimum requirements, property value may be determined by
an appraisal paid for by the applicant and administered by the City. In addition, the City’s cumulative
improvement district debt will not exceed 5 percent of the City’s secondary assessed valuation.
Bonds issued to finance improvement district projects will not have maturities longer than ten years.
b. Community Facility District debt will be permitted only when the full cash value of the property, as
reported by the Assessor’s Office, to debt ratio (prior to improvements being installed) is a minimum
of 3/1 prior to issuance of debt and 5/1 or higher after construction of improvements. In addition,
the City’s cumulative facility district debt will not exceed 5 percent of the City’s secondary
assessed valuation. The landowner/developer shall also contribute $0.25 in public infrastructure
improvement costs of each dollar of public infrastructure improvement debt to be financed by the
32. Bond interest earnings will be limited to funding changes to the bond financed Capital Improvement Plan, as approved by City Council, or be applied to debt service payment on the bonds issued for construction of this plan.
33. While considering the bond rating impacts, the effect on short-term user rates and the level of cash reserves, the Water and Sewer Enterprise Funds will use long-term debt when prudent to achieve a ratio of long-term debt to tangible fixed assets (capital assets net of depreciation plus equity in joint venture) of no more than 50 percent (50%).
34. All fund designations and reserves will be evaluated annually for long-term adequacy and use requirements in conjunction with development of the City’s balanced five year financial plan.
35. General Fund Stabilization Reserve of 10 percent (10%) of annual general governmental (General and Transportation funds) operating expenditures will be maintained for unforeseen emergencies or catastrophic impacts to the City.
36. Debt Service Reserve will be funded with secondary property taxes, levied by City Council, sufficient to pay the bonded indebtedness for General Obligation bond principal and interest. A debt service sinking fund will be maintained to account for these restricted revenues and debt payments, as well as any additional debt amounts deemed to be advisable and necessary for any public or municipal purposes.
37. A privilege tax debt reserve will be funded at no less than the annual debt service for all currently outstanding one percent (1%) privilege tax supported debt to be temporarily used for unforeseen emergencies or catastrophic impacts to the City.
38. Contingency Reserves for each fund to be established annually will be maintained to offset unexpected expenditure increases. Contingency reserves may also be used for unanticipated and/or inadequately budgeted events threatening the public health or safety. Use of contingency funds should be utilized only after all budget sources have been examined for available funds, and subject to City Council approval.
39. Separate Operating Fund Reserves will be maintained for the City’s Water, Sewer, Solid Waste Management, and Aviation Enterprise Funds. Such reserves shall be funded between 60 and 90 days of budgeted operating expenditures, excluding expenditures for debt service. Operating Fund Reserves shall be maintained to provide contingency funding and expenditure flexibility in the event of unexpected declines in revenue or increases in costs.
40. Replacement and Extension Reserves will be maintained by the Water and Sewer Enterprise Funds to ensure adequate resources for replacement of water and sewer infrastructure. Such reserves shall equal two percent (2%) of the gross book value of all tangible fixed assets of the system and shall be utilized only to provide contingency funding and expenditure flexibility during times of unusual circumstances.
41. Self-Insurance Reserves will be maintained at a level, which, together with purchased insurance policies, will adequately indemnify the City’s property, liability, and health benefit risk. A qualified actuarial firm shall be retained on an annual basis in order to recommend appropriate reserve levels, which will be approved by Council.
42. A Fleet Management Reserve will be maintained based upon lifecycle replacement plans to ensure adequate fund balance required for systematic replacement of fleet vehicles and operational contingencies.
43. The City’s accounting and financial reporting systems will be maintained in conformance with all state and federal laws, generally accepted accounting principles (GAAP) and standards of the Governmental Accounting Standards Board (GASB). The City Treasurer shall issue timely monthly financial reports to City Council.
44. Prior to the end of each fiscal year the Council shall designate certified public accountants who, shall perform an independent audit of the City’s annual financial statements in accordance with generally accepted government auditing standards. The certified public accountants shall be independent of the City government, having no personal interest, direct or indirect, in the fiscal affairs of City government or any of its officers. The certified public accountants shall submit their reports to the Council. All such audit reports shall be a matter of public record.
45. Financial systems will maintain internal controls to monitor revenues and expenditures on an ongoing basis.