02-09-21 CCM Workshop (Fund Balance Policy)HUTCHINSON CITY COUNCIL
SPECIAL WORKSHOP
MEETING MINUTES
TUESDAY, FEBRUARY 9, 2021, AT 4:00 P.M.
CITY CENTER — COUNCIL CHAMBERS
Call to Order — 4:00 p.m.
Mayor Gary Forcier called the meeting to order. Members present were Brandon Begnaud, Chad
Czmowski and Dave Sebesta. Member absent was Mary Christensen. Others present were Matt
Jaunich, City Administrator and Andy Reid, Finance Director.
DISCUSSION/REVIEW ITEMS
1. Review of Fund Balance Policy
Andy Reid, Finance Director, presented before the group. Mr. Reid explained what fund balance
is which is the difference between assets and liabilities reported in the General Fund. It is the
accumulation of all prior years' net surpluses and/or deficits of revenues over expenditures. Fund
balance is typically referred to as a "Rainy Day Fund" or "Reserves".
Mr. Reid explained that the State Auditor recommends that cities maintain a fund balance of
between 35%-50% or no less than five months of operating expenditures. Bond rating agencies
do not have recommended fund balance levels, but they look favorably on larger fund balances
which protect against contingencies and cash flow needs. The City's current General Fund
balance policy states that the City will maintain an unrestricted fund balance in the general fund
of an amount not less than 40% of the next year's general fund budgeted expenditures. Mr. Reid
noted that it is essential that governments maintain adequate levels of fund balance to mitigate
current and future risks and to ensure stable tax rates. The risks must be identified and discussed
to determine if any warrant a commitment of fund balance to be available in the event of need.
Potential risks include cash flow & liquidity, natural disasters, public health emergencies,
economic stability or budget balancing, capital expenditures and one-time expenditures. Mr.
Reid discussed each of the potential risks in more detail. Mr. Reid noted that if the Council is
comfortable with the City's working capital amount of $5,478,000, then it needs to be determined
what to do with the remaining unassigned fund balance amount of $2,262,000 or the other 16.5%
of the general fund balance. Mr. Reid provided fund balance scenarios which included
considering committing fund balance for the following: percentage/fixed amount to cover all
risks; percentage/fixed amount to address tax levy stabilization; and percentage/fixed amount to
address contingencies. Mr. Reid noted that a percentage would result in a fund balance that
changes annually as total expenditures fluctuate. This may be appropriate for levy stabilization to
keep up with expenditures. A fixed amount may be more appropriate to address contingencies as
long as that amount sufficiently protects the city. Mr. Reid then provided fund balance scenarios
for the Council to consider.
Council Member Czmowski asked if the City could continue to operate as it has been by using
the fund balance for emergencies or very large projects and maintain the 40%. Staff is mainly
inquiring if the Council would like to take the approach a step further and designate funds for
risks. Mr. Jaunich expressed that as the fund balance has continued to grow it may be prudent to
assign fund balance numbers to specific areas. Mr. Jaunich noted that by enhancing the fund
balance policy it will indicate to staff where the money should be spent. Mr. Jaunich reminded
the Council that things can be kept as is where anything over 40% is a true rainy day fund or the
decision could be made that anything over 55% be transferred to the community improvement
fund and be used for projects or risks.
Council Members noted that they liked the idea of using fund balance for levy stabilization or
transferring funds to the community improvement fund when fund balance is over 55% and have
Council discussion/action for the transfer. Mr. Jaunich noted that two scenarios will be put
together for the Council to consider to update the fund balance policy. He would like a final
policy approved by May.
Motion by Czmowski, second by Forcier, to adjourn at 4:50 p.m. Roll call vote was taken:
Czmowski — aye; Begnaud — aye; Sebesta — aye; Forcier — aye. Motion carried unanimously.
ATTEST:
Gary T. Forcier Matthew Jaunich
Mayor City Administrator