Finance Committee Agenda and Packet 2021 08 23

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LL �t�'.`'f FINANCE COMMITTEE Loll sville COMMUNICATION COLORADO • SINCE 1878 SUBJECT: RESERVE POLICIES — REVIEW & DISCUSSION DATE: AUGUST 23, 2021 PRESENTED BY: KEVIN WATSON, FINANCE DIRECTOR BACKGROUND The Committee requested a review and discussion the City's Reserve Policies. This communication addresses some of the more significant components of the reserve policies, which are attached for the Committee's reference. RESERVE POLICIES — FINANCIAL POLICIES, SECTION 2 The Reserve Policies help define the appropriate level of financial resources to guard against service disruption in the event of unexpected revenue shortfalls or unanticipated one-time expenditures. The policies document the appropriate reserve levels to protect the City's credit worthiness and maintain its good standing with bond rating agencies. Reserves are accumulated and maintained to provide stability and flexibility to respond to unexpected adversity and/or opportunities. This policy establishes the reserve amounts the City will strive to maintain in its General Fund and its other major operating funds. Staff will be available at the meeting to discuss each policy section and highlight some specific requirements. Below is a summary of Financial Policies, Section 2. 2.1 General Fund Reserves. • The policy sets the minimum reserves at 15% of current operating expenditures. • The policy sets the targeted reserves at 20% of current operating expenditures, in recognition of: o the General Fund's reliance on revenue sources that are subject to fluctuations (sales and use taxes); o the General Fund's exposure to unexpected and significant one-time expenditure outlays (transfers to the Capital Projects Fund, mid -year changes to operations, disasters, etc.); and o the potential drain on General Fund resources from other funds (recurring support transfers to the Open Space & Parks Fund, the Cemetery Fund, and the Recreation Fund). FINANCE COMMITTEE COMMUNICATION