How Important is this Topic

3. How Important is this Topic Do you buy your bread one slice at a time ?? Do you buy your milk one glass at a time ??

4. What about �Toilet Paper� Important Issues deserve a Police How Important is a Reserve??

5. Fund Balance �Net Assets of the fund� �A Measure of Available Financial Resources� For Budgeting as Cash Carryforward --- ( use the lessor of ) 1. Current (liquid) Assets less current liabilities 2. Unreserved Fund Balance

6. Three Reasons for Fund Balance Three Purposes � 1. Encumbrances 2. Available to Fund Budget Requests 3. A Contingency or Reserve

7. Long Range Financial Planning Set up a five year model for major funds Are there surplus years & deficit years? Can the surpluses cover the deficits? Let the fund balances carryover Preserve the fund balance, use as a revenue

8. Moody�s Investors Service One Size does not fit all Consider your factors,,, how many emergencies are waiting for you? One to two months of operating expenses Five to ten percent of annual budget

9. Standard & Poor�s Best Practices Top Ten List �factors heavily into credit analysis� #1 -- �Establish or Enhance rainy day/budget stabilization reserves.� Allows financial flexibility Using reserves is not a sign of credit weakness

10. Standard & Poor�sConsiderations for Policy Cash Flow Requirements Volatility of Revenues & Expenses Legal requirement or informal policy When can reserves be drawn down Mechanism for rebuilding reserves

11. Fitch RatingsThe 12 Habits of HighlySuccessful Finance Officers Fund Balance Reserve Policy �Maintaining an operating reserve is perhaps the most effective practice an issuer can use to enhance its credit rating.� Considered �very significant�. The size depends on the variability of revenues & expenses. No formula or suggestion given.

12. Fitch � Fund Balance Policy Operating reserves, revenue stabilization. Insulation against financial problems Working capital for seasonal cash flows Fitch looks most positively on policies adopted into law with level of funding and withdrawal procedure identified. Demonstrates executive commitment.

13. Fitch � Fund Balance Policy Fitch looks at � The level of reserves Level of reserves as a percent of spending (including debt service) Liquidity and availability of reserves

14. Fitch � Fund Balance Policy A Good Policy should include � A realistic target reserve level Criteria for drawing on reserves Directions for replenishment of reserve

15. GFOA�sRecommended Budget Practices Develop Policy on Stabilization Funds (Rainy Day Fund, Unreserved, Undesignated Fund Balance, Contingency Fund) Maintain level of financial resources to protect against having to cut level of service due to revenue shortfalls or unexpected one-time expense Policy should identify how and when reserves are built up and when they can be used

16. GFOA WebsiteExamples of Reserve Policy City of Portland, Oregon 5% �Emergency Reserve�, for emergency expenditures, to avoid a negative ending balance, to be restored in following year. Another 5% �Counter Cyclical Reserve�,, cover revenue shortfalls, begin to restore within 24 months.

17. GFOA WebsiteExamples of Reserve Policy City of Mission Viejo, CA Contingency Reserve, Economic Uncertainty Reserve, Exposures Reserve, Reserve for Infrastructure, Reserves for Encumbrances, others,,,, All Total Minimum 15% Other Reserves for Equipment R&R @ 100% of Depr, Facility R&R @ 60% of Depr, Gas Tax @ 30%

18. PSL�s Budgetary Policy

19. So,,, How Much is Enough?? Are you safe?? Are you Overtaxing??

20. �An Operating Margin� Should have 3 months reserve. 25% Contingency.

21. Surplus Fund Balance Recommended uses,,,,�One Time Revenues are for One Time Expenses.� Fund Capital Projects Reduce Existing Debt Save for a Rainy Day

22. Questions??Answers??