M E M O R A N D U M
To: Honorable Mayor and Town Council
From: Rafael G. Casals, Town Manager
Date: October 21, 2015
Re: Fund Balance Policy - Amendment of Ordinance 13-06 (Second Reading)
REQUEST
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AN ORDINANCE OF THE MAYOR AND TOWN COUNCIL OF THE TOWN OF CUTLER BAY, FLORIDA, REGARDING BUDGETING AND RESERVES; AMENDING ORDINANCE 13-06 TO INCREASE THE MINIMUM RESERVE PERCENTAGE FOR THE RESERVE FUND BALANCE OF THE TOWN’S ANNUAL GENERAL FUND BUDGET; PROVIDING FOR SEVERABILITY; PROVIDING FOR INCLUSION IN THE CODE; REPEALING CONFLICTING ORDINANCES; AND PROVIDING FOR AN EFFECTIVE DATE.
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BACKGROUND AND ANALYSIS
During our fiscal year 2012-13 Budget Hearings, the subject regarding the creation of a “contingency reserve” account was discussed by both the Town Council and members of the public. The Town Council adopted Ordinance 13-06 to enact such a fund balance policy. The establishment of the fund balance policy insures against unanticipated events that would adversely affect the financial condition of the Town and jeopardize the continuation of necessary public services. This policy insures the Town maintains adequate fund(s) balance and reserve(s) in the Town's General Fund, its primary “operating fund”, to provide the capacity to: (1) provide sufficient cash flow for daily financial needs, (2) secure and maintain investment grade bond ratings, (3) offset significant economic downturns and revenue shortfalls, and (4) provide funds for unforeseen expenditures related to emergencies.
Ordinance 13-06, among other things, requires the Town to maintain a reservation of fund balance in the General Fund, set aside in “unassigned fund balance” for contingencies and emergencies, equal to a minimum of ten percent (10%) of the next fiscal year’s General Fund operating expenditure budget (as defined). Since enacting Ordinance 13-06, the Town has grown, both from a financial standpoint as well as from a population standpoint.
As a result, Town Staff believes it would be prudent for the Town Council to consider amending Ordinance 13-06 to increase the minimum fund balance reserve percentage to fifteen percent (15%) seventeen percent (17%). Doing so would accomplish a few key goals.
First, it would insure that a higher percentage of minimum reserves are being maintained for our growing Town. Second, the increased percentage would bring the Town’s policy more in line with the Government Finance Officers Association (GFOA) Best Practices of maintaining a reserve equal to at least two (2) months expenditures. Finally, the proposed Ordinance (policy) change would set a level of contingency reserve balances of fifteen percent (15%) seventeen percent (17%) that exceeds the goal as adopted in the Town’s 2006 Strategic Plan (page #12 - Goal 2.1: The Town of Cutler Bay will be financially responsible and accountable community).
As the Town Council is well aware, from discussions with Town Staff and from presentations by the Town’s auditors, the Town’s fund balance reserves are well in excess of this percentage. However, having a formal fund balance policy helps deter the possibility of emergency funds being used in ways not intended. The recommended change in reserve percentage to fifteen percent (15%) seventeen percent (17%) is simply a minimum reservation. Nothing prevents the Town Council from setting aside an even higher percentage. For example, for the fiscal year ended September 30, 2014, page 19 of the Town’s audited financial statements (i.e., CAFR), shows General Fund “unassigned fund balance” of $16.3 million. This amount represents 109% of General Fund operating expenditures (as shown on page 21 of the CAFR) which may be used for “contingencies and emergencies” as per the Town’s formal fund balance policy.
RECOMMENDATION
It is recommended that the Town Council approve the attached Ordinance on first reading.
ATTACHMENTS
• Attachment “A” - Comments from First Southwest (Town’s Financial Advisor)
• Attachment “B” - Comments from Alberni Caballero & Fierman (Town’s Auditors)
• Attachment “C” - Town Ordinance No. 13-06
• Attachment “D” - Proof of Advertisement (Miami Herald - October 8, 2015)