Financial Operating Policies FY2027.docx
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June 16, 2026 Page 1 of 8 FINANCIAL OPERATING POLICY INTRODUCTION Financial policies establish the framework for overall fiscal planning and management and set forth guidelines for both current activities and long-range planning. Financial policies and procedures are not “set in stone” and should be reviewed periodically. It is recognized that the City Council may approve an action that is contrary to the policies due to special circumstances. The City Manager and the executive team will develop procedures and guidelines to implement the financial policies. The City Manager and executive team will have the primary responsibility for reviewing financial actions and providing guidance on financial issues to the City Council. Overall Goals The overall financial goals operating policies are: Fiscal Wellness o To have cash solvency which is the ability to pay existing expenses. o To have budgetary solvency which is the ability to balance the budget in all operating, capital and debt funds with appropriate revenue sources and meet all statutory budgetary requirements prior to the beginning of each fiscal year. o To have long-run solvency which is the ability to pay future expenses. o Service level solvency is the ability to provide needed and desired services. Flexibility - which reflects the goal that the city is in a position to respond to changes in the economy or new service challenges without an undue amount of financial stress. Adherence to the Highest Accounting and Management Practices - which reflects the goal that the City is in compliance with the Government Finance Officers’ Association (GFOA) standards for financial reporting and budgeting, the Governmental Accounting Standards Board (GASB) standards and pronouncements, and other professional standards. The purpose of the Financial Operating Policy is to provide guidance and clarity on how the budget will be structured and developed, define the budget control system, how to amend the budget and specific revenue and expenditure principles to ensure ongoing financial sustainability and consistent operating practices. Operating Budget Expenditure Limitation On August 26, 2014, the City of Buckeye voters approved a Permanent Base Adjustment Option to the State imposed expenditure limitation. In accordance with the Expenditure Limitation, total expenditures may not exceed the final appropriations once the budget is adopted. Budget amendments may be processed at any time during the fiscal year per the budget amendment guidelines included in this policy; however, under no circumstance may the total adopted budget be exceeded. The City Council will adopt a balanced budget which includes all funds prior to the beginning of the fiscal year. Adoption of the tentative budget constitutes Council approval for the City Manager to negotiate and enter into any contracts required for the timely execution of specifically identified budgeted activities or work and the application for and acceptance of any specifically identified budgeted grant(s) with no further Council action, provided no statute or ordinance requires to the contrary. Council action is necessary for all contracts – including grant agreements -- (i) in excess of the sum of $250,000; or (ii) grant agreements requiring a city contribution. Key Budget Features Appropriations at year end: All budgeted expenditures lapse at year end unless re-appropriated as a June 16, 2026 Page 2 of 8 carryover. Expenditures encumbered with an authorized purchase order before year-end must occur by June 30th and be invoiced within forty-five (45) calendar days of the close of the fiscal year. Expenditures not paid within this time frame are then charged against the next fiscal year’s department budget. Carryovers: Carryovers of one-time capital and operating projects from one budget year into the next will be estimated in the budget and reconciled by the Finance Department based on actual spending to ensure the project budget is adjusted to the approved funding level. Level of Control: The budget process shall be decentralized, allowing all departments to provide updated revenue and expenditure amounts entered directly into an online budget system. Budgetary control shall be at the departmental level and managed separately between the personnel budget, the operating budget, and the capital budget. A department cannot spend more than the budget appropriated. Where appropriate, line-item appropriations shall be established for each cost center (division) within each department. Cost Allocation: Costs incurred in the General Fund to support the operations of the Enterprise Funds (water, wastewater and environmental services) will be recovered through an indirect cost allocation. Annually through the budget process, the City will update its Cost Allocation Methodology adjusted for the new operating budget. The primary purpose in cost allocation is to allocate the relative costs of operating the City's internal support departments to the departments that provide a product or service to the public. Assigning the cost of delivering goods or services allows the City to make an informed determination in setting user fees. Long-Term Financial Forecasts: Forecasts for all major operational and capital funds will be prepared annually covering a five-year period and considered during budget development. Debt Management The purpose of the City of Buckeye's Debt Management Policy is to provide sound guidelines for the issuance and management of debt to finance land acquisition, capital construction, equipment, and other capital needs. These guidelines are designed to ensure the City maintains strong credit ratings, limits financial risk, and retains the flexibility necessary to finance future capital requirements in a cost-effective manner. Purpose and Scope This policy governs the issuance and administration of all City debt and lease financings. While the City aims to adhere to this policy, market conditions or extraordinary circumstances may require exceptions to accomplish strategic goals, such exceptions shall be reported to the council. Debt Issuance Process Debt issuance begins with an evaluation of the City’s 5-year Capital Improvement Program (CIP), including an analysis of projected revenues, rate affordability, debt coverage requirements, credit impacts, and community financial impact. Bond amounts are determined through cash flow projections and are subject to approval by the City Council, in compliance with federal, state, and local requirements. Generally, all bond proceeds should be expended within three years of issuance. Debt may be issued through competitive sale, negotiated sale, or private placement, depending on prevailing market conditions. The most advantageous method will be selected by the CFO in consultation with the City’s Financial Advisor. The City will maintain or obtain ratings from at least two major credit agencies for each issuance. Debt Limitations Debt repayment schedule must not exceed the asset life. Water and Wastewater revenue bonds shall maintain a minimum 1.2x debt service coverage. The June 16, 2026 Page 3 of 8 City’s goal is to maintain coverage of 2.0x. Excise tax revenue must exceed debt service by at least 3.0x, with a goal of 5.0x New General Obligation (GO) bonds will only be issued if the projected combined (primary and secondary) property tax rates do not exceed $2.25 per 100 of assessed value. GO Bonds shall not exceed 30 years in duration Enterprise capital needs will be financed through revenue-secured or excise tax-secured obligations. Financial plans and rate structures must support the new debt while maintaining affordability and credit quality. Short-term lease-purchase obligations may be used for capital equipment at the discretion of the Chief Financial Officer. The City will not issue variable rate debt. Improvement District (ID) Debt o ID Bonds may be issued only with general City benefit when property values meet a minimum 3:1 ratio to debt prior to improvements. o Total Improvement District debt must not exceed 5% of the City's primary assessed value. o Maturities shall not exceed 10 years. Investment of Bond Proceeds The City shall comply with all applicable federal, state, and indenture restrictions regarding the use and investment of bond proceeds. This includes restrictions on types of securities, allowable yield, and investment time periods. The CFO or designee will direct investments in accordance with permitted investments for each bond issue. Refunding Bonds Refunding bonds are issued to retire all or part of outstanding bonds, typically to refinance at lower interest rates to reduce debt service. Other reasons include restructuring repayment schedules, changing debt instrument types, or removing undesirable covenants. Bonds shall only be refunded if present value savings are at least 3% of refunded amount and the amount to be refunded is over $1,000,000. The CFO has discretion to include candidates slightly below targets to optimize financial objectives. The original term of debt may not be extended through a refunding. Issuance, Post-Issuance & Continuing Disclosure Compliance Procedures The City shall comply with all applicable compliance requirements and shall maintain appropriate guidelines and procedures to ensure federal tax compliance from issuance until bonds are retired. Declaration of Official Intent To reimburse project expenses prior to issuing debt, a Declaration of Official Intent (per Treasury Regulation Section 1.150-2) must be completed annually and filed with the City Clerk. The Declaration will list projects planned for the upcoming fiscal year, allowing reimbursement of capital expenses with proceeds from tax- exempt reimbursement bonds if sold. Budget Amendments During the fiscal year, it may become necessary to amend the approved budget. To do so, the following criteria must be followed Type of Transfer Description Authorization Comments Department Operating Transfer between City Council Includes all transfers June 16, 2026 Page 4 of 8 Budgets funds, departments, or contingency between Schedule E items Transfer personnel costs between divisions (orgs) within the same department and fund Department Director Typically due to department reorganizations Transfer operating costs between categories (object codes) and/or divisions (orgs) within the same department and fund Department Director Transfers from insurance, bad debt expense, transfers, tuition reimbursement, incentive funds, and interdepartmental charges require approval from the CFO Transfer between personnel and operating within the same department and fund City Manager/DCM One time savings should not be used for ongoing expenses Capital Projects Transfer CIP project budget to CIP savings Chief Financial Officer Transfer from CIP savings to a CIP project budget up to $250,000 City Manager/DCM Existing CIP Projects only Transfer from CIP savings to a CIP project budget of > $250,000 City Council Transfer from contingency or other source to a CIP project budget City Council Grants/IGAs Transfer of up to $250,000 City Manager/DCM Transfer of > $250,000 City Council Carryovers All carryover adjustments Chief Financial Officer Adjustments to carryovers to reflect prior year expenditures Includes budgeted and unbudgeted carryovers Contingencies and other Transfers Emergencies City Manager/DCM City Council After the fact ratification by Council Non-emergencies City Council REVENUE PROJECTIONS AND MONITORING Revenue and Expenditure Principles Ongoing expenses will be funded by ongoing revenues while one-time expenses may be funded from one- time revenues, fund balances or ongoing resources. Funds available in Special Revenue funds will be used whenever possible to offset use of General Fund resources. Fund balances are non-recurring revenue and June 16, 2026 Page 5 of 8 will be appropriately used for one-time expenditures or budgeted as contingency fund appropriations. The City strives to ensure diversification and stabilization of its revenue base. The primary property tax shall be set at the maximum amount allowed. A five-year financial projections shall be prepared and updated at least annually for all major operational and capital funds to ensure financial sustainability. Growth and/or development related revenues should first be used for growth or development related expenditures. The annual budget shall be prepared in a manner that reconciles ongoing expenditures with ongoing revenues. Conservative but realistic revenue projections will be prepared to assess the limits of budget appropriation using trend analysis and current data to minimize estimating too high or too low. User fees and charges will be analyzed on an ongoing basis and updated at least every 5-years to ensure that direct and indirect costs are recovered for services benefiting individuals/groups versus a larger public benefit. Development (impact) fees will be reviewed at least every five years to ensure that growth is paying for growth. The City will diligently pursue outstanding collections through revenue collectors. The City may contract with outside collection agencies to collect any delinquent amounts. Education will be a part of taxpayer interactions to protect major revenue sources. Grants used to finance ongoing programs must include a plan to terminate the program or absorb costs if the grant funds go away. Ongoing maintenance costs such as vehicle repair and maintenance, roadway maintenance, or building repair and maintenance should be funded through ongoing revenues. *Department Director authorization may be delegated. FISCAL POLICIES RELATED TO ENTERPRISE ACTIVITIES Fees charged for services should cover direct operating costs of providing the service including, but not limited to, maintenance, repairs and replacement, as well as indirect and overhead costs of providing the service. Rate adjustments for enterprise operations will be based on rate studies that incorporate the long- term (at least five years) operational, replacement and capital plans and needs of the enterprise. The cost of providing a service shall be analyzed before proposing an additional or enhanced service to be offered to the community. Utility rate studies will be performed at a minimum every three to five years, and internal rate analyses will be completed every year for Water and Wastewater funds based on ten-year projections. Capital Budget A long-range capital improvement plan covering at least a 5-year period should be prepared and updated each year. This plan must be fully funded within the City’s projected 5-year financial forecast. Projects that do not have adequate funding shall be included in an “unfunded out year”. Projects tied to potential revenue sources such as grants or future voter approved General Obligation bonds may be included along with the identified potential revenue source. When planning capital projects, an estimate of the annual impact on the City’s operating budget shall be included with the project request. Asset Management Asset Management funds should be established, funded and used to replace and preserve General Fund assets consistent with department plans where ten-year average annual requirements at a minimum June 16, 2026 Page 6 of 8 exceed $250,000 to address unusual single year peaks such as a single large technology application or system replacements. Other department plan-based replacements below this threshold should be incorporated into the base budget or capital improvement program and use one-time General Funds. Investment Policy The City of Buckeye Investment Policy governs the investment of public funds to ensure safety, liquidity, and appropriate yield in accordance with Arizona Revised Statues (A.R.S. Title 35, Chapter 2) and industry best practices. Applies to all financial assets of the City except pension trust funds and bond proceeds governed by separate agreements. Primary Objectives, in order of priority: o Safety – Safeguard principal. o Liquidity – Meet cash flow needs. o Return- Achieve market rates of return consistent with risk constraints. Prudence and Ethics o Managed under the “prudent person” standard: investment made with care, skill and diligence. o Employees must avoid conflict of interest and refrain from the personal business with investments counterparties. Delegation of Authority o The Chief Financial Officer is the designated Investment Officer responsible for daily operations and compliance. o Guidelines and operating procedures shall be adopted by the Chief Financial Officer. Authorized Investments - Permitted instruments include: o U.S. Treasury and agency securities o Certificates of Deposit (in eligible institutions) o Repurchase agreements (collateralized) o Local Government Investment Pool (LGIP) o Highly rated commercial paper and corporate notes (within defined limits) Maturity and Diversification o Maximum maturity: 5 years per investment o Portfolio will maintain diversification by issuer; security type, and maturity to reduce risk exposure. Safekeeping and Custody o All securities must be held by an independent third-party custodian in the City’s name Performance and Reporting o Portfolio performance is benchmarked against appropriate indices (e.g. LGIP). o Annual reports must be provided to the City Manager and Council, including investment holdings, earnings, and compliance. Fund Balance Uses and Reserves Policy The Governmental Accounting Standards Board (GASB) defines five reserve classifications of fund balance based on the level of restrictions placed on each. The hierarchy from least spendable to most spendable fund balance for governmental funds is non-spendable, restricted, committed, assigned and unassigned. When funds are available from multiple classifications, the most restrictive fund is to be utilized first. Nonspendable Fund Balance: Nonspendable fund balance classification includes amounts that cannot be spent because they are either (a) no in spendable form or (b) legally or contractually required to be maintained intact. Restricted Fund Balance: Fund Balance should be reported as restricted when constraints placed on the use of resources are either: o (a) Externally imposed by creditors (such as through debt covenants). Grantors, contributors, or laws or regulations of other governments; or o (b) Imposed by law through constitutional provisions or enabling legislation. June 16, 2026 Page 7 of 8 Committed Fund Balance: Amount that can only be used for specific purposes pursuant to constraints imposed by formal action of the government’s highest level of decision-making authority should be reported as committed fund balance. Those committed amounts cannot be used for any other purpose unless the government removes or changes the specified use by taking the same type of action (for example, legislation, resolution, ordinance) it employed to previously commit those amounts. Assigned Fund Balances: Assigned Fund Balances are amounts constrained by the City’s intent to be used for specific purposes but are neither restricted nor committed. By reporting particular amounts that are not restricted or committed in special revenue, debt service or capital project funds, the City has assigned those amounts to the purposes of the respective funds. Unassigned Fund Balance: Unassigned Fund Balance represents General Fund balance that has not been assigned to other funds and that has not been restricted, committed or assigned to specific purposes. Funds in excess of the minimum targets will be retained in the Unassigned General Fund Balance. The General Fund Reserve Policy The General Fund is the main operating fund of the City. The General Fund accounts for all general revenues of the City and for expenditures related to the rendering of the City’s general services. The General Fund is considered to have a high level of risk to operations due to its dependence on revenue streams that are potentially susceptible to economic downturns and revenue reduction impacts from outside agency actions. In addition, the General Fund is the main funding source when responding to unexpected events or emergencies. Our policies are intended to maintain a prudent level of contingencies and reserves based on the revenue impacts described above, the City’s desire to maintain strong bond ratings and the ability to respond to unforeseen opportunities and challenges. To this end the City has established the following contingency and reserve types. Budget Stabilization Reserve / Committed / Not Appropriated. The Government Finance Officers Association (GFOA) recommends no less than two months of General Fund Unrestricted Budgetary Fund Balance. This reserve, or “rainy day fund” shall be created to offset operating deficits that may result from economic downturns and revenue reduction impacts from outside agency actions that can create adverse service impacts, allowing time to reduce spending and/or find other ongoing revenue opportunities. The city will maintain a Budget Stabilization Reserve as a committed fund balance in the General Fund seventeen percent (17%) of the budgeted operational revenues for the forecasted fiscal year. Budget Stabilization Reserve – The Stabilization Reserve may only be used if specific action is taken by Mayor and Council after the unassigned fund balance is depleted. The City Manager must be able to demonstrate the magnitude of the unforeseen emergency or catastrophic event, and there are no reasonable budget adjustments available to continue to provide the essential services to the public. In the event the Budget Stabilization Reserve must be used, the City must restore the balance to the minimum limit over a period not to exceed five fiscal years following the fiscal year in which the event occurred. The Budget stabilization reserve shall not be included in the annual appropriations budget. General Fund/ Council Contingency / Appropriated / Unassigned: General Fund contingency may be established when deemed appropriate through the budget process. Acceptable contingency uses are emergency situations, unexpected one-time opportunities, and appropriation transfers to other funds. Use if General Fund Contingency requires council approval. June 16, 2026 Page 8 of 8 Other Fund Reserve/Contingency Other funds have been identified as needing contingencies and/or reserves due to one or more of the following reasons: self-supporting nature, the potential for unanticipated revenue or expense changes that can negatively affect operations, to help maintain a stable fee structure, or to cover the potential of unanticipated events threatening the public health, safety, or welfare. Targeted reserves will be maintained as described below. The reserve is to provide for unanticipated revenue shortfalls and/or unexpected expense increases in the current year. Reserves should only be utilized after all other budget sources have been examined for available funds. Should the minimum target level for any of the funds identified fall below its target, a plan to restore within the next year, but not to exceed a three-year period must be included with transfer request. Water Operating Enterprise Fund accounts for specific services funded directly by fees and charges to City Water customers. The fund is intended to be self-supporting and will maintain a minimum target reserve of 17% of budgeted ongoing revenues for the forecasted fiscal year, this budget stabilization reserve will not be appropriated. Other Water reserves/contingencies may be created and appropriated when deemed appropriate. Wastewater Operating Enterprise Fund accounts for specific services funded directly by fees and charges to City Wastewater customers. The fund is intended to be self-supporting and will maintain a minimum target reserve of 17% of budgeted ongoing revenues for the forecasted fiscal year, this budget stabilization reserve will not be appropriated. Other Wastewater reserves/contingencies may be created and appropriated when deemed appropriate. Environmental Operating Enterprise Fund accounts for specific services funded directly by fees and charges to City Solid Waste customers. The fund is intended to be self-supporting and will maintain a minimum target reserve of 17% of budgeted operational revenues for the forecasted fiscal year, this budget stabilization reserve will not be appropriated. Other Solid Waste reserves/contingencies may be created and appropriated when deemed appropriate. A Landfill Post-Closure Compliance Reserve will also be maintained as required by State and Federal law. Reserves and Contingencies within all other funds may be established when deemed appropriate through the budget process.