EXHIBIT A - COMPREHENSIVE FINANCIAL POLICIES FINAL REDLINE.PDF
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Comprehensive Financial Policies The city has formally adopted several financial policies that provide a general framework of goals and objectives for the operating budget, debt management, financial reserves, financial reporting, and the capital budget. Strong policies provide a standard against which current budgetary performance can be measured and proposals for future programs evaluated. These policies serve as a framework for sound financial planning and decision making. These policies were developed in order to: 1) institutionalize good financial management practices, 2) maintain adequate financial controls, 3) define how the city will manage its resources to provide valued programs and services to the community, 4) maintain the city's excellent bond rating, 5) manage risk, and 6) provide a long-term perspective for financial and budgetary decisions. Operating Budget Policies • Current revenue will be sufficient to support current operating expenditures. In the event that recurring expenditures exceed recurring revenues, non-recurring drawdowns of unassigned General Fund balance is are permitted to the extent that they are done in compliance with reserve policy. • Each enterprise operation of the city will maintain revenues, excluding development fees, sufficient to support the annual recurring costs of the enterprise operation and any reserve requirements. • The city shall conduct an annual rate review of its enterprise fund operations as part of its annual budget process. • Charges for services and other revenues will be reviewed on scheduled bases a scheduled basis and adjusted as deemed necessary to respond to cost increases or any other changing circumstances, all subject to the approval of the City Council. • A five-year long-range financial forecast incorporating both revenues and expenditures of all city funds will be updated annually and presented to the City Council prior to the start of the city budget process. Each year of the forecast will be balanced as necessary to maintain the specified financial reserve levels. Budget Transfers • Article V, Section 5.08 of the Tempe City Charter states that at any time during the fiscal year, the City Manager may transfer part or all of any unencumbered appropriation balance among programs within a department, office or agency. The Exhibit A city manager may delegate this authority. Upon written request by the manager, the Council may by ordinance transfer part of all of any unencumbered appropriation balance from one department, office or agency to another. • Cash and/or appropriation transfers between different funds must be approved by City Council via Ordinance. • Cash and/or appropriation transfers between different departments must be approved by City Council via Ordinance. • Contingency appropriation, excluding grants, restricted revenues, and donations must be approved by City Council. • Transfers within the same fund and same department may be approved by the Deputy City Manager-Chief Financial Officer or the Municipal Budget Office Director. • Transfers from non-department and contingency appropriations for grants, restricted revenues, and donations may be approved by the Deputy City Manager- Chief Financial Officer or the Municipal Budget Office Director. Financial Reporting Policies • Accounting systems will comply with the standards issued by the Government Accounting Standards Board and the Government Finance Officers Association. • An annual audit will be conducted on the city's Annual Comprehensive Financial Report by an independent certified public accounting firm. • Full disclose disclosure of all financial activities and related matters will be provided in the annual financial statements and bond presentations. • Financial systems will be maintained to monitor expenditures, revenue, and program performance on an ongoing basis. • The city shall comply with all state and federal regulations concerning financial management and reporting. Debt Management Policies • Debt will be used to finance long-term capital improvements and not used to finance recurring operating expenses. • Debt may take the form of: o General obligation debt, supported by secondary property tax revenues o Revenue bond debt, supported exclusively by the revenue from a particular city enterprise (water, sewer) o Excise tax bonds, supported by general city revenue o Special Assessment Improvements District debt, paid by property owners within the District, and backed by the value of the land and its improvements o Short-term borrowing or lease/purchase contracts, supported by operating revenues • In accordance with state law, the total value of General Obligation bonds issued for the purposes of water, wastewater, artificial light, open space preserves, parks, playgrounds, and recreational facilities cannot exceed 20% of assessed valuation. The total value of General Obligation bonds issued for all other purposes other than those listed above cannot exceed 6% of assessed valuation. • Borrowing for other capital projects may be pursued only when the project being financed is of a long-term nature and special circumstances are present to justify its utilization. • Debt term should match the useful life of the capital projects funded. The average weighted bond maturity schedule, on average, should be maintained at or below 15 years or should not exceed the useful life of the assets. The term of any debt issued should not exceed the useful life of the asset. • Debt repayment schedules shall generally be based upon level annual principal and interest payments. • The city will monitor overlapping debt issued by including overlapping jurisdictions debt burden into the city's financial reports. • Authorized debt shall be limited as follows unless authorization is obtained from the City Council to exceed these limits: o General obligation bonds shall follow the guidelines established in the Debt Management Plan; o Excise tax bonds shall maintain revenue coverage limits of at least 4 times debt service; o Improvement District bonds shall not exceed 5% of the city's secondary assessed valuation; o Short-term borrowing or lease purchase contracts must be budgeted for within the annual city budget. • The city will, unless otherwise justified, use bond proceeds within the established time frame pursuant to the bond ordinance, contract, or other documents to avoid arbitrage. The city will maintain a system of recordkeeping and reporting to meet the arbitrage rebate compliance requirements of the Federal Internal Revenue Service Regulation 1.148-11. • The city shall adhere to a Debt Management Program. This program will size the City's General Governmental tax-supported debt based upon benchmarked criteria in order that the city not take on debt that would adversely affect its budget. The debt ratios will be updated at regular intervals and incorporated into the City's Debt Management Plan. These criteria include: o Outstanding General Governmental tax-supported debt per capita o Ratio of General tax-supported debt to the fair market value of Tempe property. o Ratio of General tax-supported debt per capita as a percent of per capita personal income. o Ratio of General Governmental tax-supported debt service to general governmental expenditures. Reserve Policies • The city shall maintain an unassigned fund balance in the General Fund between 20% and 30% of current-year operating revenues. And, if the fund balance is projected to be outside of policy ranges during the 5-year term of the Long-Range Financial Forecast, the City Manager shall recommend, to the City Council, a plan to maintain the fund balance within the established policy parameters. • The city shall maintain a total fund balance in the Transit Special Revenue Fund of at least 25% of current-year operating revenues. • The city shall maintain a total fund balance in the Transportation Special Revenue Fund (also known as the Highway User Revenue Fund - HURF) of at least 10% of current-year operating revenues. • The city shall maintain a total fund balance in the Arts and Culture Special Revenue Fund of at least 10% of current-year operating revenues. • The city shall maintain a total fund balance in the General Obligation Debt Service Fund of between 4% and 8% of outstanding debt that is supported by secondary property taxes. • The city shall maintain an unrestricted retained earnings reserve in the Water/Wastewater Enterprise Fund of no less than 25% 90 days of current-year operating revenuesbudgeted operating expenses. The city will establish a rate stabilization fund to manage revenue volatility., plus 2% of the gross book value of the tangible assets of the city’s water/wastewater system. • The city shall maintain an unrestricted retained earnings reserve in the Solid Waste Enterprise Fund of no less than 15% of current-year operating revenues. • The city shall maintain an unrestricted retained earnings reserve in the Emergency Medical Transport Fund of no less than 25% of current-year operating revenues. • If the fund balance or retained earnings reserve of any of the funds specified above is reduced below the established minimum standard, the City Manager shall incorporate a plan to restore the fund balance to policy levels in the next scheduled presentation, to the City Council, of the 5-year Long-range Financial Forecast. • The city shall maintain a total fund balance in the Health Fund between 10% and 25% of the current year budgeted amount for medical claims, including prescription drugs, and dental claims. • Each annual operating budget will include a contingency appropriation for temporary funding financing of unforeseen needs of an emergency nature for that year. The desired level of contingency appropriation each year shall be based on the average of the three prior-years’ experience levels. but no less than 2% of fund revenue for the current fiscal year. • Insurance reserves shall be maintained at a level which, together with any purchased insurance, will adequately indemnify the city’s capital assets and its officers and directors against loss. Reserves for self-insurance shall be based on actuarial studies. • Fund balances above established reserve requirements may be used for one-time expenditures such as capital equipment or increased pay-as-you-go financing for the capital improvements program. Cash Management Policies • The investment of city funds shall be structured to ensure the highest levels of security while achieving the maximum return possible as provided for in Section 2- 180 of the Tempe City Code. • The city will maintain a strong system of written internal controls designed to protect the investment of public funds. Capital Budget Policies • Estimated costs, potential revenue and funding sources shall be identified prior to any project being submitted for Council approval. A department which that anticipates a capital project exceeding its adopted budget shall submit a plan to Council addressing the issues for its prior approval. • • A five-year capital improvements program, as required by City Charter, will be developed, and updated annually including anticipated funding sources. In addition, a prior year capital project status report shall be presented to Council for information purposes when the capital improvement budget is considered. • A five-year capital program, as required by City Charter, will be submitted to Council three (3) months prior to the close of each fiscal year. At least fifteen days before the end of the current fiscal year, the Council shall hold a public hearing and adopt the five-year capital program after the close of the public hearing. • The annual operating budget will provide for the adequate maintenance and the orderly replacement of the capital plan and equipment from current revenue where possible. • Capital improvement operating budget impacts will be coordinated with the development of the operating budget. Future operating, maintenance and replacement costs will be forecast as part of the city's annual long- range financial capacity study. • The city may provide for internal, pay-as-you-go financing for its capital improvements program. Funding may come from fund balance reserves or any other acceptable means of funding. The city will coordinate the development of the capital improvements budget with the development of the operating budget. Future operating costs associated with new capital improvements will be projected and included in operating budget forecasts. Property Tax Policy • Each year, the City Council shall approve a 5-year Capital Improvement program and adopt a secondary tax levy for the subsequent fiscal year. • The total annual secondary tax levy shall only be used to make debt service payments on bonds issued to fund capital projects approved by the City Council in the capital program and shall not exceed an amount calculated as follows: o For existing property, which is defined as property subject to property tax in the prior year, establish a maximum total property tax levy not to exceed a 5.0% increase in any year as approved by City Council. o The primary levy on existing property shall be established first, within the limits provided in the city’s adopted comprehensive financial policies and within limits provided in state statute. After establishing the primary levy on existing property, the secondary levy on existing property shall be established at a level that, when combined with the primary levy on existing property, does not increase the total levy on existing property by more than 5.0% of the total city property tax levy in the prior year. o For newly-taxable property, collect a levy by applying, to the net assessed values of new properties, the same primary and secondary tax rates used to establish the levies on existing taxable property. • Secondary property tax levies shall be deposited into the Debt Service Fund, from which general purpose bonded debt payments are made. The Debt Service Fund shall be maintained in accordance with generally accepted accounting principles and shall have a fund balance between 4% and 8% of outstanding general-purpose debt at the end of each fiscal year. • Projections of revenues and debt service payments shall be used to create an annual long-range forecast, of at least 20 years, for the Debt Service Fund. Projected debt service payments associated with the approved capital improvement program shall not cause the projected Debt Service Fund balance to drop below 4% in any year of the forecast, applying levy projections that comply with this policy for each year of the forecast. Pension Funding Policy • Arizona Revised Statute requires each employer/member of the Public Safety Personnel Retirement System (PSPRS) to formally adopt a pension funding policy annually. The annual policy must address: 1) how to maintain stability of the city's contribution to PSPRS, 2) how and when the city's funding requirements of PSPRS will be met, and; 3) defining the city's funding ratio target and timeline for reaching the targeted funding ratio.