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The following City financial policies adopted 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 City is in compliance with the comprehensive financial
policies adopted with this budget.
Operating Management Policies
1. All departments 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. Budget development will use strategic multi-year
fiscal planning, conservative revenue forecasts, and modified zero-base expenditure
analysis that requires every program to be justified annually in terms of meeting intended
objectives ("effectiveness criteria") and in terms of value received for dollars
allocated ("efficiency criteria"). The process will include a diligent review of
programs by staff, management, citizens and City Council.
4. A City Council Budget Sub-Committee will solicit
citizen input and serve in an advisory capacity in reviewing operating and capital budget
recommendations from a departmental, program, and goals perspective.
5. Revenues will not be dedicated for specific
purposes, unless required by law or generally accepted accounting practices (GAAP). All
non-restricted revenues will be deposited in the General Fund and appropriated by the
budget process.
6. Current revenues will fund current expenditures and
a diversified and stable revenue system will be developed to protect programs from
short-term fluctuations in any single revenue source. To ensure that Scottsdale does not
become overly reliant on ‘growth’ revenues for operating needs, a minimum of 25%
construction privilege tax revenues will transferred annually to the Capital Improvement
Program for one-time capital project use.
7. 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 revenue
or enhanced operating efficiencies. To the extent feasible, personnel cost reductions will
be achieved through attrition.
8. Enterprise (Water, Sewer, Solid Waste Management,
and Airport) user fees and charges will be examined annually to ensure that they recover
all direct and indirect costs of service 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 based on five-year financial plans.
9. All non-enterprise user fees and charges will be
examined annually to determine the direct and indirect cost of service recovery rate. The
acceptable recovery rate and any associated changes to user fees and charges will be
approved by the City Council.
10. 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.
11. 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 departments are sufficient for operation and
replacement of vehicles and other capital equipment (fleet, computers, phones and copier
systems). Replacement costs will be based upon equipment lifecycle financial analysis.
12. 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.
13. Balanced revenue and expenditure forecasts will be
prepared to examine the City’s ability to absorb operating costs due to changes in
the economy, service demands, and capital improvements. The forecast will be updated
annually, focus on a three-year horizon, but include a five-year outlook.
14. 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. Departments, in cooperation with the City Manager, will
identify all activities that could be provided 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 annually or on an
"opportunity" basis.
15. Cash and Investment programs will be maintained in
accordance with the City Charter and the adopted investment policy and 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.
16. The City will follow an aggressive, consistent, but
sensitive to the circumstances policy of collecting revenues to the limit of our ability.
Collection policy goal will be for all adjusted uncollectible accounts to be no more than
.5 of 1% of the total City revenue being adjusted for bad debts annually.
Capital Management Policies
17. A five-year Capital Improvement Plan will be
developed and updated annually, including anticipated funding sources. Capital improvement
projects are defined as infrastructure or equipment purchases or construction which
results in a capitalized asset costing more than $25,000 and having a useful (depreciable
life) of two years or more.
18. The capital improvement plan will include, in
addition to current operating maintenance expenditures, adequate funding to support repair
and replacement of deteriorating infrastructure and avoidance of a significant unfunded
liability.
19. Proposed capital projects will be reviewed and
prioritized by a cross-departmental team regarding accurate costing (design, capital, and
operating) and overall consistency with the City’s goals and objectives. Financing
sources will then be identified for the highest ranking projects.
20. Capital improvement lifecycle costs will be
coordinated with the development of the Operating Budget. Future operating, maintenance
and replacement costs associated with new capital improvements will be forecast, matched
to available revenue sources and included in the Operating Budget. Capital project
contract awards will include a fiscal impact statement disclosing the expected operating
impact of the project and when such cost is expected to occur.
21. Dedicated two tenths of percent (.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, transit and aviation
and transportation improvement operating costs.
22. Pay-as-you-go Capital Improvement Plan financing
should account for a minimum of 25 percent of all capital improvement projects 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.
23. Pay-as-you-go contributions up to 10% or $500,000,
whichever is less, may be authorized by City Council towards any single utility
undergrounding improvement district. Any unused annual budget authorization may
carryforward towards a maximum $2 million appropriation for utility undergrounding capital
projects that benefit the community as a whole.
Debt Management Policies
24. The City will seek to maintain and, if
possible, improve our current bond rating in order to minimize borrowing costs and
preserve access to credit.
25. An analysis showing how the new issue combined with
current debt impacts the City’s debt capacity and conformance with City debt policies
will accompany every future bond issue proposal.
26. The City will communicate, and, where appropriate,
coordinate with all jurisdictions with which we share a common tax base concerning our
collective plans for future debt issues.
27. City Debt Service costs (GO, MPC, HURF, Revenue
Bond, McDowell Sonoran Preservation and Contractual Debt) should not exceed 25% of
the City’s operating revenue in order to control fixed costs and ensure expenditure
flexibility. Improvement District (ID) and Community Facility District (CFD) debt service
is not included in this calculation because it is paid by district property owners and is
not an obligation of the general citizenry. Separate criteria have been established
regarding ID and CFD debt policies.
28. 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 as authorized by voters. Other types of
voter-approved debt (e.g., water, sewer, and HURF) may also be utilized when they are
supported by dedicated revenue sources (e.g., fees and user charges).
29. General Obligation debt issuances will be managed
on an annual basis to match funds to Capital Improvement Plan cashflow requirements while
being sensitive to the property tax burden on citizens. Careful management of bond
issuances will allow the City to not exceed $1.50 property tax per $100 assessed value.
30. Municipal Property Corporation and contractual
debt, which is non-voter approved, will be utilized only when a dedicated revenue source
(e.g., golf course revenue, privilege tax, bed tax) can be identified to pay debt service
expenses. 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 project to be financed will generate net
positive revenues (i.e., the additional tax revenues generated by the project will be
greater than the debt service requirements). The net revenues should not simply be
positive over the life of the bonds, but must be positive each year within a reasonably
short period (e.g., by the third year of debt service payments).
31. McDowell Sonoran Preservation debt service will be
funded by the dedicated .35% privilege tax. The City’s privilege tax 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.
32. 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 $.25 in public
infrastructure improvement costs of each dollar of public infrastructure improvement debt
to be financed by the district.
33. Debt financing should not exceed the useful life of
the infrastructure improvement with the average (weighted) bond maturities at or below ten
years.
34. A ratio of current assets to current liabilities of
at least 2/1 will be maintained to ensure the City’s ability to pay short-term
obligations.
35. 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.
36. Utility rates will be set, as a minimum, to ensure
the ratio of revenue to debt service meets our bond indenture requirement of 1.2/1. The
City goal will be to maintain a minimum ratio of utility revenue to debt service of 1.6/1
or greater, to ensure debt coverage in times of revenue fluctuations attributable to
weather or other causes, and to ensure a balanced pay-as-you-go Capital Improvement Plan.
Reserve Policies
37. 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.
38. General Fund Stabilization Reserve of 10 percent of
annual general governmental (General and Transportation funds) operating expenditures will
be maintained for unforeseen emergencies or catastrophic impacts to the City. Funds in
excess of 10 percent, but not to exceed $5 million, may be used for economic investment in
the community when justified by the financial return to the City.
39. 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.
40. Water and Sewer Fund Reserves will be maintained to
meet three objectives: 1) ensure adequate funding for operations; 2) to ensure
infrastructure repair and replacement; and, 3) to provide working capital to provide level
rate change for customers.
a. An Operating Reserve will be funded not to exceed 90
days of budgeted system operating expenditures to provide sufficient expenditure
flexibility during times of unusual weather resulting in variations in average consumption
and associated operating expenses.
b. A Replacement and Extension Reserve will be
maintained, per bond indenture requirements, to meet the minimum requirement of 2% of all
tangible assets of the system to ensure replacement of water and sewer infrastructure.
c. In addition, Working Capital will be funded based
upon a multi-year financial plan to provide adequate cash for water and sewer capital
improvements and to level the impact of rate increases upon our customers.
41. Solid Waste Management Fund Reserve will be funded
not to exceed 90 days of budgeted system operating expenditures to provide contingency
funding for costs associated with solid waste disposal. Costs may include site purchase,
technology applications, or inter-governmental investment to maximize the value of waste
disposal activities.
42. Aviation Fund Reserve will be funded not to exceed
90 days of budgeted system operating expenditures to provide contingency funding for costs
associated with airport operations. Costs may include site purchase, technology
applications, or inter-governmental investment to maximize the value of airport
activities.
43. 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 funding levels, which
will be approved by Council.
44. 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. Operating departments will be
charged for fleet operating costs per vehicle class and replacement costs spread over the
useful life of the vehicles.
45. Contingency Reserves to be determined annually will
be maintained to offset unanticipated revenue shortfalls and/or 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.
Financial Reporting Policies
46. 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) and the Government Finance Officers Association (GFOA).
47. An annual audit will be performed by an independent
public accounting firm, with an audit opinion to be included with the City’s
published Comprehensive Annual Financial Report (CAFR).
48. The City’s CAFR will be submitted to the GFOA
Certification of Achievement for Excellence in Financial Reporting Program. The financial
report should be in conformity with GAAP, demonstrate compliance with finance related
legal and contractual provisions, disclose thoroughness and detail sufficiency, and
minimize ambiguities and potentials for misleading inference.
49. The City’s CAFR will also be submitted to the
National Federation of Municipal Analysts (NFMA) Awards Program and to national
repositories identified by the NFMA as a continuing commitment to disclose thoroughness to
enable investors to make informed decisions.
50. The City’s Budget will be submitted to the
GFOA Distinguished Budget Presentation Program. The budget should satisfy criteria as a
financial and programmatic policy document, as a comprehensive financial plan, as an
operations guide for all organizational units and as a communications device for all
significant budgetary issues, trends and resource choices.
51. Financial systems will maintain internal controls
to monitor revenues, expenditures, and program performance on an ongoing basis.