01-14-2002 Council Packet - Laserfiche WebLink

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'^.202. Jdt) tikir^n • \fs)G JAN 1 4 2002 lAmgmm of Hmmoobkm CHiot CtiioM pwomutHm^ mxeJUnem Oil t ur unuwu v A'j 1 Q 2Ci''l45 University Avenue West, St Paul, MN 55103-2044 Phone:(651)281-1200 (800)925-1122 CirVOrUnOiVO TDD (651) 281-1290 LMC Fax: (651) 281-1299 LMCIT Fax: (651) 281-1298 Web Site: http://www.lmnc.ore MEMORANDUM To; Front: Re: Date: City Mayors James F. Miller City Fund Balances and state aid cuts 1/9/2002 The projected state budget deficit has once again focused attention on cit>’ fund balances and potential cuts in aids paid to cities. We fully expect the upcoming legislative session will include intense scrutiny of not only the state budget but the operations of cities as well. In preparation for the session, we would like to provide you with some information on fund balances that may help you to respond to criticism of your city’s reserves and to respond to proposals to cut state aids such as LGA or the market value homestead credit reimbursement. The attached memo is a description of the importance of city fund balances. Although the concepts outlined in this brief are simple and straightforward, when coupled with specific information on your city’s financial situation they might help explain to citizens, the media or other interested parties why maintaining sufficient reserves is a prudent cost-effective financial practice. Below are a few responses to criticisms or questions about your reserves and responses to legislative proposals to lofce your city to reduce its reserves. The unique needs and financial situation of each city are important factors in determining the necessary level of reserves. For example, a rapidly growing community that is expanding its tax base may need a different level of reserves than a stable, aging community. A “one-sizc-fits-all” budget reserve for all cities would not accommodate these unique community characteristics. Most cities maintain at least one-half of their annual operating budgets in reserve simply to avoid short-term borrowing. These reserves are similar to the state’s cash flow account and are necessary because property tax settlements and aid payments only occur twice a year. ---------