01-14-2002 Council Packet - Laserfiche WebLink

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City fund balance basics City fund balances have become a popular topic of discussion among state policymakers. Some of these discussions include basic misunderstanding of cit>' fmances. This heightened attention means it is important for city officials to be able to e.xplain to their citizens, legislators, and the media the purposes of city fund balances. WTiile each city ’s financial siuiation is unique, this article provides an overview of the basic characteristics that most city fund balances share. What the Office of the State Auditor reports as city' fund balances is really a combination of several important components of city finances including cash flow funds, savings for projects, and rainy day reserv'es. Cash flow funds Due to the semi-annual structure of city' finances, city fund balances are very different fi-om the state’s reserves. The Office of State Auditor report measures city fund balances on Dec. 31, shortly after the city receives its largest sources of revenue from the property- tax and state aid distributions. These reserves are necessaiy- to cany cities through the next five to six months of operations—until the next property tax and state aid distributions in June and July. Measuring a city ’s fund balance on Dec. 31 is equivalent to measuring your personal wealth on the day after payday-before you ’ve paid the mortgage and car loan. Without adequate cash flow reseives, cities would be forced to borrow to pay for operating expenses, which increases the overall cost of city services to taxpayers. Graph A shows a one-year cash balance for the city of Oak Park Heights. l*he cash balance is highest in December and July, after taxes and state aids are distributed to the city'. The difference between the peaks and valley, about two-thirds of the city ’s cash balance at the end of December, is the city ’s cash flow need. 140C.000 1,200,000 1.000.000 Graph A: Oak Park Heights General Fund Cash Balance ^ ^ ^ ^ ^ ^ ^ sP jP 1