Resolution No. 2024-03 - Revising the City Financial and Budget Policies - Approved 051424Page 1 of 2
RESOLUTION NO. 2024-03
A RESOLUTION of the City of Bainbridge Island, Washington,
revising a consolidated set of financial and budget policies, updating
policies last adopted by the City Council during 2022.
WHEREAS, the City Council (“Council”) is responsible for setting financial and budget
policies for the City of Bainbridge Island (“City”); and
WHEREAS, state law, including Chapter 35A.33 RCW, provides guidance for budgets
in code cities; and
WHEREAS, Chapter 35A.34 RCW authorizes cities to establish biennial budgets under
which authorization, and the authorization of the Bainbridge Island Municipal Code (“BIMC”),
including Chapter 2.82 BIMC, the City prepares a biennial budget with a mid-biennial review;
and
WHEREAS, in the past, the Council has approved policies and passed resolutions related
to financial and budget policies that continue to guide City financial practices including, but not
limited to: Resolution No. 1993-52, as adopted and as amended through the passage of
Resolution No. 2021-19, which establishes investment policies; Resolution No. 2008-01, which
establishes an Emergency Rainy Day Reserve Fund and a Contingency Reserve within the
General Fund; Resolution No. 2008-14, which establishes debt management policies; Resolution
No. 2010-35, which set targets for General Fund reserves; Resolution No. 2013-13, which
provides that funds from the City’s utilities shall not be expended for general governmental
services; Resolution No. 2014-17, which sets a minimum fund balance policy for the General
Fund; Resolution No. 2016-20 adopting a Municipal Securities Disclosure Policy, which
establishes public disclosure rules for City-issued municipal securities; Resolution No. 2016-18,
which establishes procedures for the surplus and sale of City real property; Resolution No. 2016-
19, updating the consolidated Financial Policies; Resolution No. 2018-07 and Resolution No.
2020-08, establishing the consolidated Financial Policies; Resolution No. 2020-09, updating the
City Debt Policy; and Resolution No. 2020-11, establishing the Equipment Rental and Revolving
Fund; and Resolution No. 2028, replenishing financial reserves; and
WHEREAS, the City Administration (“Administration”) requested, as part of the 2025-
2026 biennial budget process, that the Council update the Financial and Budget Policies that
were adopted by the Council previously; and
WHEREAS, the Council last updated the Financial and Budget Policies through
Resolution No. 2022-28; and
WHEREAS, the Council and the Administration wish to establish an ongoing
consolidated set of financial and budget policies to be administered by the Administration and to
guide Council action on an ongoing bases.
.
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NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF BAINBRIDGE
ISLAND DO RESOLVE AS FOLLOWS:
Section 1. The updates to the Financial and Budget Policies that are shown in Exhibit A,
Exhibit B, and Exhibit C, which are attached hereto and incorporated herein by this reference,
are hereby adopted.
PASSED by the City Council this 14th day of May 2024.
APPROVED by the Mayor this 14th day of May 2024.
Joe Deets, Mayor
ATTEST/AUTHENTICATE:
Christine Brown, MMC, City Clerk
FILED WITH THE CITY CLERK: April 5, 2024
PASSED BY THE CITY COUNCIL: May 14, 2024
RESOLUTION NO.: 2024-03
Attachment: Exhibit A, Financial and Budget Policies
Exhibit B, Facilities, Maintenance, Replacement and Reconstruction Policy
Exhibit C, Cost Allocation Manual
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Exhibit A to Resolution No. 2024-03
FINANCIAL AND BUDGET POLICIES
Section 1. PURPOSE
The primary purpose of financial and budget policies is to provide guidelines for the City
Council and staff to use in making financial decisions that ensure core services are maintained
and the Council’s vision for the community is achieved.
The financial and budget policies guide the City to be able to withstand local and regional
economic variations, to adjust to changes in service requirements, and to respond to other
changes as they affect the community.
It is the policy of the City to maintain an excellent credit rating and assure taxpayers that the City
of Bainbridge Island is maintained in sound financial condition.
SECTION 2.OPERATING BUDGET POLICIES
The biennial budget is the City’s comprehensive two-year financial plan, which supports the
City’s approved programs and services.
Biennial budgets should provide for design, construction, maintenance and replacement of the
City’s capital assets and equipment consistent with the Capital Facilities Plan including the
related cost for operating new assets.
The City will maintain all its assets such that it protects the City’s capital investment, preserves
public safety,and minimizes future maintenance and replacement costs.
All general government current operating expenditures will be paid from current revenues and
cash carried over from prior years.
The City shall adopt a balanced budget. The City defines a balanced budget as one in which
current biennium budgeted revenues in addition to fund balances are equal to or greater than
current biennium budgeted expenditures. In addition,the City’s budget shall maintain recurring
expenditures for each fund at a level less than recurring revenues for that fund.
Reports on revenues and expenditures shall be prepared monthly and provided to the Council.
Mid-year and annual reports will also be prepared and provided.These reports will also be
posted to the City’s website or reporting portal.
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The City shall consider its financial capacity when making budget decisions. Staff shall deliver
to Council a ten-year financial capacity analysis as part of the biennial budget process.For each
financial capacity analysis, the financial assumptions shall be reasonable and shall take into
account an appropriately chosen set of inflation factors and an appropriate set of economic
projections.The Administration’s chosen assumptions for revenues, expenditure inflation
factors and economic measures shall be disclosed to the Council.
SECTION 3. REVENUES
The City will strive to maintain a diverse and stable revenue stream to protect against short-run
volatility of any single revenue source.
Because revenues, especially those of the General Fund and other tax-supported funds, are
sensitive to economic changes, the City will use a conservative approach to revenue forecasting.
Departmental revenues of the tax-supported funds shall be considered unrestricted revenue of the
City –subject to any applicable legal restriction, and subject to any applicable provision of the
financial Policies, that may apply to a particular revenue source.
Revenues from the Commercial Parking Tax shall be treated as revenues of the Street Fund.
Real Estate Excise Tax revenue shall be first applied to current capital debt service and then, to
the extent available to other eligible expenses.
The City shall maintain a structure for all fees and charges where the beneficiary of the service
pays the cost of that service except to the extent that the Council has determined that provision of
the specific service in question provides a general public benefit.
No less than once every three years,Building and Development Services (B&DS)rates shall be
reviewed, with a goal of full cost recovery for the B&DS Fund.
The City will maintain water, sewer and storm water utility rates adequate to ensure that each of
these three utility funds is fully self-supporting. Additionally, for analysis and rate modeling
purposes, the proposed rates shall take into account debt service coverage commitments, if
applicable.The capacity to support identified utility reserves will also be taken into account.
SECTION 4. EXPENDITURES
The City budget will provide for a sustainable level of service to meet the City’s identified
results.
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The City will maintain expenditure categories according to state statute and administrative
regulation. Capital expenditures shall meet the requirements of generally accepted accounting
principles (GAAP).
The City shall use major one-time revenue to fund capital improvements, debt reductions, or
reserves. The use of one-time revenues to fund operating expenditures is strongly discouraged.
The Council shall review the Administration’s recommended plan for the allocation of City costs
to various funds as part of the biennial budget process.
As a general rule, when an expenditure is incurred for which both restricted and unrestricted fund
balance is available, the City will consider the more restricted amounts to have been spent first.
On a periodic basis, the Administration shall compare the cash compensation and the value of
benefits for City employee positions to the compensation and benefit levels to a set of
comparable employers, to provide data for potential compensation and benefit policies which
may be adopted by the Council.
SECTION 5. CAPITAL
The Capital Facilities Goals and Policies that are stated in the City’s Comprehensive Plan, as
amended from time to time, are hereby included in full in the Financial Policies.
The Capital Improvement Plan and the City operating budget will be reviewed at the same time
to ensure that capital and operating needs are balanced with each other and support overall City
goals.
The City shall develop a six-year plan for capital improvements and update it at least biennially.
The City will identify the estimated costs and proposed funding sources for each capital project
proposal before it is submitted to Council for approval. The City will use intergovernmental
assistance and outside resources whenever possible. In the event that a grant, or other type of
intergovernmental assistance,is identified as a funding source for a project and the outside
funding is not secured, the City will reconsider the financial viability of that project at that time.
Each individual project included in the capital improvement plan (CIP)shall have a budget with
identified contributions by fund. Each fund amount shall be distinct and cannot be transferred
without amending the CIP. Reporting will be presented at the project and fund level.
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When a capital project is complete and has been capitalized in accordance with Generally
Accepted Accounting Principles, any remaining project budget appropriation authority shall
lapse,and all remaining funds shall return to their original source.
SECTION 6. RESERVES
Reserve funds enable the City to deal with unforeseen emergencies and changes in economic
conditions.
General Fund Reserves
Emergency Reserve:The City shall maintain an Emergency Reserve with a budgetary target
amount of $1.0 million. These funds shall be used only to pay for emergencies that cannot
reasonably be accommodated by current budget appropriations.These funds may be appropriated
only by a vote of not less than five (5) members of the City Council or the unanimous vote of a
legal quorum.It is the Council’s policy that if funds are spent from the Emergency Reserve, it
should be replenished as resources become available.
General Fund Minimum Fund Balance.The City shall maintain a minimum fund balance of
25% of ongoing actual operating revenues in the General Fund.The General Fund minimum
fund balance shall mean the dollar amount of unencumbered fund balance, excluding any
amounts held in reserves or otherwise committed funds.This fund balance is intended to provide
stability in the event of unexpected changes to revenues or expenses.
Replenishment of Reserves.If the General Fund balance falls below policy reserves as defined
above,the City Manager shall prepare and present to the City Council a recommended plan to
replenish the reserves. The City Council shall review and adopt a replenishment plan within 12
months after the policy reserve levels first fall below the minimum levels.Once adopted, the
replenishment plan’s progress will be reviewed periodically with the City Council but no less
than every calendar year until such time as the reserves are replenished to or above the target
levels described above.
Utility Fund Reserves
Capital Contingency Reserve.Each utility fund shall maintain a separate capital contingency
reserve. Each reserve shall have a targeted level of at least one percent (1%)of the utility
system’s capital assets at net book value.The primary purpose of the reserve is to provide a
ready source of cash in case of an emergency, should a major piece of equipment or a portion of
the utility’s infrastructure fail unexpectedly.
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Operating Reserve –Water and Sewer Funds.These reserves shall have a targeted level as of
each year-end of at least sixty (60)days’ongoing actual operating expenses.The primary
purpose of the reserve is to provide cash for operations in case of seasonal variations in revenue
or expenses, or to support operations in a year in which revenues are abnormally low.
Operating Reserve –Storm and Surface Water Management Fund. This reserve shall have a
targeted level as of June 30 and December 31 of at least 90 days’ongoing actual operating
expenses. The primary purpose of the year-end reserve is to provide cash for operations during
the period between the payment of the fees, which occurs in two large payments in April and
October.
Restricted Debt Reserve.To the extent that the City issues a form of debt (e.g. Revenue Bonds)
that requires the City to maintain a restricted cash reserve during the term of the debt repayment
period, the utility shall maintain a restricted reserve for such purpose. This reserve is to
safeguard the purchasers of the utility’s debt and may be used to fund the final installment or last
year’s debt service.
SECTION 7. ACCOUNTING, AUDITING AND FINANCIAL REPORTING
The City will establish and maintain a high standard of internal controls and accounting
practices. The City accounts and budgets for revenue and expenditures on a modified accrual
basis for general government and enterprise activities.Year-end financial statements for
enterprise activities shall use full accrual accounting.
The accounting system will maintain records on a basis consistent with accepted national
standards for local government accounting and the Washington State Auditor’s Budgeting,
Accounting and Reporting System.
The annual financial statements shall conform to Generally Accepted Accounting Principles
(GAAP)and be in the form of an Annual Comprehensive Financial Report as recommended by
the Government Finance Officers Association.
A capital asset system will be maintained to identify all City assets and their location.
The City will ensure that City records are audited annually, resulting in a financial opinion. The
results of the audit will be available to the public through the City’s website.
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SECTION 8. DEBT
The City’s Debt Policy, as it may be amended from time to time, is hereby included in the
Financial and Budget Policies.
SECTION 9. INVESTMENT
The City’s Investment Policy, as it may be amended from time to time, is hereby included in the
Financial and Budget Policies.
SECTION 10. BANKING AND MONEY MANAGEMENT
Safety
The City shall engage in relationships, and conduct its business, with one or more banks,
repositories of public pooled funds, and financial institutions in a manner that avoids
concentrating City balances in a way that may expose the City to material losses in the event of
an adverse development affecting any bank or financial institution in which City assets are held.
Money Management
The City Administration shall seek to form relationships with banking and financial institutions
that offer the City efficient and effective tools and technologies to manage and track transactions
and balances.
SECTION 11. MUNICIPAL SECURITIES DISCLOSURE
The City’s Municipal Securities Disclosure Policy, as it may be amended from time to time, is
hereby included in the Financial and Budget Policies.
SECTION 12. SURPLUS REAL PROPERTY
The City’s Surplus Real Property Policy, as it may be amended from time to time, is hereby
included in the Financial and Budget Policies.
SECTION 13. PROCUREMENT POLICY
The City’s Procurement Policy, as it may be amended from time to time, is hereby included in
the Financial and Budget Policies.
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SECTION 14. EQUIPMENT RENTAL AND REVOLVING FUND
The Equipment Rental and Revolving (ER&R) Fund policy, as it may be amended from time to
time, is hereby included in the Financial and Budget Policies.
SECTION 15. GRANTS
City Council approval is required to submit an application for grants over $50,000, unless pre-
authorized for acceptance by the City Council through ordinance or resolution.The $50,000
threshold must include as part of the estimate any City “in-kind” labor used as matching funds,
and City staff will describe to the Council the amount that is provided through the grant and the
amount that is provided through in-kind matching funds.
For grants that are over $50,000,or otherwise require Council approval,but for which there is an
application deadline that does not allow City staff to obtain prior Council approval to apply for
the grant,the Department Director shall obtain the approval of the City Manager or their
designee prior to submitting the application and subsequently bring the grant to the Council for
approval and ratification.Applications for grants in the amount of $50,000 or less can be
submitted without City Council approval unless such approval is required by the granting
agency.
The City Manager, or designee, is authorized to execute all required agreements and documents
with a grant-issuing agency to effectuate any grant approved or accepted by the City Council.
To the extent that this section conflicts with any other policy or resolution adopted by the City
Council, this section controls.
Exhibit B to Resolution No.2024-03
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City Municipal Facilities Maintenance,Replacement and
Reconstruction Policy
Department of Finance and Administrative Services
Prepared by Finance Director DeWayne Pitts
Initial Development:4/12/2022,Revised 4/9/2024
Table of Contents
Policy Statement....................................................................................................................................................................2
Purpose ...................................................................................................................................................................................2
Scope .......................................................................................................................................................................................2
Goals ........................................................................................................................................................................................2
Funding ....................................................................................................................................................................................2
Authoritative Guidance .......................................................................................................................................................3
Procedures .............................................................................................................................................................................3
Condition Assessment of Existing Municipal Facilities .............................................................................................3
Budget appropriation funding.........................................................................................................................................4
Major Facility Replacement or Reconstruction .........................................................................................................4
Exhibit B to Resolution No.2024-03
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Policy Statement
The City owns and operates a variety of municipal facility assets including City Hall, the Police and
Court facility,the Senior Center Commons building and various storage,park,farm,and other
investments that must be properly maintained and eventually replaced or reconstructed to ensure
they remain safe,that financial and service level investments are maintained,and that they provide a
welcoming and usable space to serve their intended purposes.
Purpose
This policy supports the City in asset management and budgeting efforts and is established to fund
the planned replacement,reconstruction,and major maintenance costs of existing City-owned
facilities. A separate fund will be created and established by the City Council to account for
projects contemplated by this policy.Adequate budget appropriations will be calculated and
included in budgets to provide resources for planned projects.
Scope
This policy applies to the City’s existing general government municipal facility assets.It includes all
facility structures such as City Hall, the Police and Court Facility, the Senior Center Commons
building,and various storage, park, farm, and other investments that have an estimated useful life of
at least 25 years.It does not include the City’s utility owned assets or new planned purchases,land
or leased assets.It includes funding for facility replacement or reconstruction and major
maintenance as defined under the City’s capital asset policy.
Goals
Effective asset management is comprised of several components including:
Assets need to be regularly assessed so there is up-to-date information on condition and
status.
Assessment information is used to determine maintenance, upgrades,replacement,
reconstruction,and mitigation issues.
Facility asset management includes a plan to address asset lifecycle needs, including
replacement,reconstruction,inspections, and maintenance
A system in place to prioritize asset care and the allocation of limited resources.
It is the intention of this policy to adequately fund major maintenance projects of City-owned
facilities to include an additional reserve amount for unforeseen or catastrophic events,plus an
additional amount to set aside for eventual replacement or reconstruction of City-owned
facilities.
Funding
The municipal facilities renewal and replacement policy may incorporate several available funding
sources to pay for major maintenance. These sources vary in legal, grant and other restrictions.
This policy will also incorporate and follow an existing financial policy that states when an
expenditure is incurred, the City will first consider and target the more restricted funding sources
where possible.The following sources, at a minimum,may be considered for allocation to the City
Facilities Capital and Maintenance fund:
Exhibit B to Resolution No.2024-03
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Real Estate Excise Tax
Grants
General fund reserve transfers
One-time revenue transfers
Other sources as appropriate and allowed by policy or legal authority
Authoritative Guidance
Government Finance Officers Association (GFOA)
The Government Finance Officers Association represents public finance officials throughout the
United States and Canada. GFOA's mission is to advance excellence in public finance and includes
best practices in governmental finance.The following link provides best practices for establishing
capital asset renewal and replacement.Strategies for Establishing Capital Asset Renewal and
Replacement Reserve Policies (gfoa.org)
City of Bainbridge Island –Capital Asset Policy
The capital asset policy provides guidance on acquisition, inventories, maintenance and the disposal
of capital assets.
City of Bainbridge Island –2018 Facility Condition Assessment
A facility condition assessment was performed in 2018 that will serve as a minimum target
consideration to meet funding obligation for major maintenance projects.An updated condition
assessment will need to be completed periodically as outlined below under “Procedures”but no
less than once every five years.
Roles and Responsibilities
Facility asset management is a shared function between the Public Works Department and the
Finance and Administrative Services Department. Public Works is responsible for the asset life
cycle process including acquisition, condition assessment, maintenance,cost estimates and the
disposal of assets. Finance is responsible for the budgeting, recording, depreciation,physical
inventory,and update of a physical asset list.
Finance will also oversee the administration of the municipal facilities fund and calculate an annual
budget appropriation.The final appropriation of funds is the responsibility of the City Council.
Procedures
Condition Assessment of Existing Municipal Facilities
The City will conduct a systematic condition review of all facility assets no more than every five
years. The assessment will include scoring criteria,asset useful lives used for assessments, project
justification and estimated cost to replace or repair. Major repairs may be capitalized following the
City’s Capital asset policy.Operating project costs that are not capitalized will follow the
procedures of this policy for determining appropriation into the fund as outlined in “Budget
appropriation funding” below.Cost estimates from the assessment will be used to determine an
estimate for adequate funding for needed asset improvements.
Exhibit B to Resolution No.2024-03
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Budget appropriation funding
The budget appropriation for funding the Municipal Facilities Maintenance,Replacement,and
Reconstruction fund each year shall be calculated using the following components:
Six year planned Facilities Operating projects planned in the City operating budget plus;
An amount to be calculated for existing building replacement or reconstruction such as
current depreciation or some other reasonable method of calculation that will support
projects such as facility replacement or reconstruction over the estimated useful life.
*Note that any 6-year Facilities Capital Improvement Plan projects that meet City capitalization
thresholds will be tracked funded separately in the Capital Construction Fund and identified in the
6-year Capital Improvement plan and will not directly affect this fund.If there is a purchase of a
new City facility, it will be factored into future consideration once it has been placed into service.
Resources from the Facilities Maintenance and Capital Replacement Fund may be utilized to fund
these projects via an interfund transfer.
Major Facility Replacement or Reconstruction
The future replacement or reconstruction of major facilities may be initially funded using an
amount equal to the annual depreciation expense or some other reasonable method of calculation
of major facility buildings over their expected useful lives.Utilizing depreciation to fund major
facility replacement or reconstruction should be considered a starting point and will not typically
generate enough funds for capital replacement needs because the cost of replacing or
reconstructing facility assets generally increases over time and may exceed the original cost.
Periodic review and the facility condition assessment will be used to determine if additional
replacement funds are needed and if funds accumulated are reasonable in amount.If replacement
revenue received over the life of an asset is insufficient to cover the facility replacement or
reconstruction, the funding decision for the incremental difference may be made on a case-by-case
basis depending on the nature and extent of the difference and the short-and long-term impact on
the fund balance, operating budget,and future asset replacement schedules.Conversely, if funds
accumulated in the fund are determined to be excessive,an adjustment to future rates may be
considered.
Resolution No. 2024-03 -COBI Cost Allocation Manual -Revised
Cost Allocation Manual
Goals, background, and methodology of the City of Bainbridge Island’s Cost Allocation Plan.Effective Date:1/1/2025 1/1/2023
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City of Bainbridge Island
Cost Allocation Manual
Table of Contents
Definitions .....................................................................................................................................................3
Goal ...............................................................................................................................................................4
Background ...................................................................................................................................................4
Applicable Guidance .....................................................................................................................................4
Governmental Accounting Standards Board (GASB)................................................................................4
CFR-2012-title2-vol1-part225 ...................................................................................................................5
Washington State Auditor ........................................................................................................................5
COBI Methodology ........................................................................................................................................5
Section One: Personnel .............................................................................................................................5
Classification of Departments ...............................................................................................................5
Determination of Allocation Factors .....................................................................................................6
Allocating Costs / Surcharge and Rebate ..............................................................................................7
Section Two: Central cost .........................................................................................................................8
Insurance ...............................................................................................................................................8
Interfund Rent.......................................................................................................................................8
Process Overview Summary......................................................................................................................9
Section Three: Roads and Stormwater Facilities Construction and Maintenance Costs ..........................9
Street Sweeping and Road Maintenance Spoils .................................................................................10
Water Quality and Flow Monitoring Program ....................................................................................10
Groundwater Management Program .................................................................................................10
Kitsap Conservation District Farm Assistance .....................................................................................10
Roads and SSWM Capital Improvement Projects ...............................................................................11
Allocation Information by Department ......................................................................................................11
COBI Cost Allocation Plan
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DefinitionsAs used in the City of Bainbridge Island Cost Allocation Manual–1.“Accounting unit” refers to any segment of the coding used to track financial activity (fund,object, organization, department, etc.).2.“B&DS Fund” refers to the Building and Development Services Fund (MUNIS Fund number407).3.“Central service cost allocation plan” as defined in CFR-2012-title2-part225 means thedocumentation identifying, accumulating, and allocating or developing billing rates basedon the allowable costs of services provided by a governmental unit on a centralized basis toits departments and agencies. The costs of these services may be allocated or billed tousers.”Examples of such services include, but are not limited to accounting, personneladministration, purchasing, etc.4.“COBI” refers to the City of Bainbridge Island. In this document, the term “the City” is alsoused to refer to COBI.5.The term “Direct costs” as used in this document is defined by CFR-2012-title2-part225 as“those [costs] that can be identified specifically with a particular final cost objective.” Anexample of a direct cost would be a professional service cost for design of a building.6.“Enterprise Funds”are a type of Proprietary Fund, specifically used to report activities forwhich a fee is charged to external users for goods or services.7.The term “GAAP Guide” refers to the 2020 edition of the “Governmental GAAP Guide For
State and Local Governments”.8.“Governmental Funds” are non-proprietary funds.9.The term “Indirect costs” as used in this document is defined by CFR-2012-title2-part225 ascosts “incurred for a common or joint purpose benefiting more than one cost objective, andnot readily assignable to the cost objectives specifically benefitted, without effortdisproportionate to the results achieved.”10.“Proprietary Funds” are defined by the GAAP Guide as, “used to account for a state or localgovernment’s activities that may be performed by a commercial enterprise… Generally, thepurpose of a proprietary fund is to provide a service or product to the public or othergovernmental entities at a reasonable cost.” Proprietary Funds are either Enterprise Fundsor Internal Service Funds (for services or activities provided to other funds or departmentswithin the governmental agency). COBI’s Proprietary Funds include Enterprise Funds, andconsist of the Water, Sewer, SSWM, B&DS Funds, and one Internal Service Fund (EquipmentRental and Revolving Fund).11.Per the GAAP Guide, “Special Revenue Funds” refer to funds that account for proceeds ofspecific revenue sources that are legally restricted to expenditures of a specific purpose.12.“SSWM” refers to Storm and Surface Water Management.13.“Utility Funds” refers to the city-operated Water, Sewer, and SSWM services Funds (MUNISFund numbers 401, 402, and 403, respectively).The term “utilities” refers to the functionsserved by these funds.
COBI Cost Allocation Plan
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GoalThe City of Bainbridge Island (hereinafter also referred to as “COBI” or “the City”)has eight guidingprinciples, including one of supporting the other principles through “the City’s organizational andoperating budget decisions.”1 In order to sufficiently measure and compare in line with this goal, itis necessary to ensure that all COBI functions share indirect costs on the basis of relative benefitsreceived.The City’s financial policies include the concept of full cost recovery.The City shall maintain astructure for all fees and charges where the beneficiary of the service pays the cost of that serviceexcept to the extent that the City Council has determined that provision of the specific service inquestion provides a general public benefit.To receive full cost recovery, the City must be able to measure the full cost of services provided,including indirect costs such as administration and other support services.The cost recovery method described herein complies with applicable guidance from State andFederal agencies.
BackgroundSome City costs are appropriately shared by one or more City funds.Like all organizations, the Cityprovides certain services that benefit the entire entity.Examples include services received by theCity as a whole, such as insurance, City office space, and overhead labor.These services aregenerally of a support nature and centralized within a single department such as Executive orFinanceand Administrative Services.These indirect costs are then allocated out to the City’s Fundsusing a variety of methods depending on the type of service provided.A basis is determined todistribute the costs founded on the relative benefit each fund receives from the function or service.The amount a fund is charged is not intended to represent a per unit cost of a transaction, such asprocessing a voucher for payment or processing a request for bid, but rather an appropriateallocation of all of the costs related to providing the support service.2The first part of the analysis is to confirm that all Funds share in the indirect labor costsappropriately. This is completed in the COBI Methodology, Section One: Personnel section below.In the department classification analysis that follows, major tasks and functions of department staffare discussed. Then an allocation determination is made based on the cost drivers of those tasks.
Applicable Guidance
Governmental Accounting Standards Board (GASB)GASB is the independent organization that establishes and improves standards of accounting andfinancial reporting for U.S. state and local governments.While the GASB is not a governmentalagency and does not have enforcement authority, compliance with GASB is enforced through theWashington State Auditor’s audit of COBI.
1 COBI Comprehensive Plan
2 The majority of this paragraph borrowed from City of Tacoma 2009-2010 Assessments Overview; statement is
applicable to COBI
COBI Cost Allocation Plan
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GASB has not issued any specific guidance describing the method of cost allocation to be applied bygovernment agencies. The overarching principle applied by COBI is found in the GASB Summary ofConcept Statement No. 1, “Financial reports are used primarily to compare actual financial resultswith the legally adopted budget; to assess financial condition and results of operations; to assist indetermining compliance with finance-related laws, rules, and regulations; and to assist inevaluatingefficiency and effectiveness.”3
CFR-2013 2012-title2-vol1-part225CFR-2013 2012-title2-vol1-part2254 establishes cost principles for State, Local, and Indian TribalGovernments for determining costs for Federal awards.The objective states that, “The principlesare for determining allowable costs only.” In defining allowable costs, the CFR provides a definitionof allocable costs at Appendix A, paragraph C.3.a, “A cost is allocable to a particular cost objective ifthe goods or services involved are chargeable or assignable to such cost objective in accordancewith relative benefits received.” This definition can reasonably be applied to both Federalallowable costs and non-Federal allocation goals.
Washington State AuditorThe Washington State Auditor’s office prescribes the accounting and reporting of local governmentsin the State of Washington under RCW 43.09.210.5 This RCW states in part, “All service renderedby…from, one department…to another, shall be paid for at its true and full value by thedepartment…receiving the same, and no department…shall benefit in any financial mannerwhatever by an appropriation or fund made for the support of another.”Therefore, a well-developed plan should include relevant, up-to-date information about overhead and how todistribute it. Also, the factors used should equitably allocate overhead.In 2009 the State Auditor’s Office audited COBI’s cost allocation plan.The conclusion was COBI wasfollowing many of the cost allocation leading practices, but not all. The noted leading practices weneeded to improve upon were as follows: “be up-to-date and detail the basis for overhead chargesand use allocation factors that equitably allocate overhead to each fund and department.” Themethodology set forth in this manual outlines how we meet all leading practices.
COBI Methodology
Section One: Personnel
Classification of DepartmentsIn classifying costs as allocable,COBI analyzed departments and individual objects to determinewhether the costs should be allocated, as well as the appropriate basis for allocation.COBI uses itscost allocation methodology for salaries and benefits only.Step one in building the plan was toanalyzethe organization by department and determine whether costs were allocable. COBIdepartments are as follows: city council, municipal court, executive, finance, public safety, planning
3 GASB Concepts Statement No. 1 Summary, published by the Governmental Standards Board
4 Published by the Federal Office of Management and Budget
6 “Budgeting, Accounting, and Reporting System (BARS)” Manual, published by the Washington State Auditor’s
office and available online at www.sao.wa.gov. “RCW” refers to the Revised Code of Washington.
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and community development, and public works.Below is a brief narrative of the organization’sinitial department analysis, followed by an in-depth look at each department.Appendix B of CFR-2013 2012-title2-part225 provides principles to be applied in establishingwhethercertain costs are allowed for Federal reimbursement. It states general costs of governmentare not allowable. These general government costs include city council, municipal court,and policecosts.6 Therefore, COBI directs charges all costs associated with those departments to the generalfund.Next, we identify our central service departments as executive and finance.Costs from centralservice departments are indirect costs, which are incurred for a common or joint purposebenefiting more than one task,activity,or fund.Indirect costs are allocable with properidentification and documentation. Furthermore, as noted in RCW 43.09.210, allocations must be fairand equitable where one fund does not benefit from another.The final two departments Planning and Community Development and Public Works,core work iscenteredaround specific work tasks or programs.Employees in these departments have acombination of direct charged time, as well as an allocation for some hours.
Determination of Allocation FactorsBelow is a brief description of each department that has any allocations, accompanied by asummary of allocation factors used for that department. Attachment A outlines the belowinformation by department in greater detail as required by CFR-2013 2012-title2-part225Appendix C.Executive
Discussion:The Executive Department provides "direction, and functions as a coordination andcommunication hub direction, coordination, and oversight"7 for the City as a whole, includingProprietary Fund activities.The department provides services in ten eight main areas: citymanagement, legal, city clerk, public records, human resources, emergency preparedness,climateaction, diversity/equity/inclusion,information technology, and communications.
Allocation Determination:The allocation basis is determined by the tasks and duties for each specific position. Theallocation basis used for the various positions in the Executive Department are as follows:FTE byfund, council agenda items, operating expenses, contracts by fund,risk management,publicrecord requests,community support and litigation dollars by fund.Finance and Administrative Services
Discussion:The Finance department provides support to all City departments and all funds, includingProprietary Funds.In addition to financial reporting,budgeting,accounts payable,payroll andaffordable housing management,the Finance department manages all utility,general and LIDbillings,and payments.
6 https://www.govinfo.gov/content/pkg/CFR-2012-title2-vol1/pdf/CFR-2012-title2-vol1-part225.pdf
7 COBI 2023-2024 2021-2022 Adopted Budget
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Allocation Determination:The allocation basis is determined by the tasks and duties for each specific position. Theallocation basis used for the various positions in the Finance Department include, but are notlimited to, the following: FTE by fund, council agenda items, operating expenses,capital projects,cash receipts, AP vouchers, LID and utility accounts, long-term debt by fund, and special projects.Planning and Community Development
Discussion:The Planning & Community Development department works with land use and constructionactivities on the Island; administers building, shoreline, environmental, and subdivisionregulations; reviews development proposals; performs code enforcement; administers land useapplications; prepares and updates long-range plans. A significant portion of PCD effort is relatedto the B&DS Fund, and the Department is also involved in the development of utility projects.
Allocation Determination:The allocation basis is determined by the tasks and duties for each specific position. Theallocation basis used for the various positions in the Planning Department include, but are notlimited to, the following:Land Use Code updates, code enforcement case load, NPDES permitrequirements, building and planning permits, shoreline monitoring project, Comprehensive Planimplementation, inspection and observance of on-site construction issues, and relatedordinances.Public Works
Discussion:The Public Works department is responsible for acquiring, constructing, operating andmaintaining public infrastructure.This includes City-owned utilities. The Administrative divisionsupports the Engineering and Operation and Maintenance (O&M) divisions by providing servicessuch as reporting, grant and contract management, and records management. The Engineeringdivisionis primarily responsible for the pre-design, design, and construction of all publicimprovements and implementation of the capital improvement plan (CIP) adopted by CityCouncil. This includes Proprietary Fund CIP projects. The Engineering Division also directsDevelopment Engineering and the City’s Water Resources planning and protection activities. TheO&M Division operates and maintains the City’s infrastructure, to include streets, storm drain,water and sewer infrastructure facilities, vehicles,parks,and open space.
Allocation Determination:The Public Works O&M Division uses the work order system and therefore direct charges theirhours. The Engineering Division direct charges most of their hours to operating or capitalprojects.In addition, tasks that are general in nature are allocated based on work order or projecthistory, and forward-looking work plans. Public Works Administrative personnel are allocatedbasedonsupport of capital and operating projects, contracts, right of way expenses, customersupport, and development and management support.
Allocating Costs / Surcharge and RebateThroughout the year, employees are either direct charging their time to specific projects, tasks orwork orders, or their hours are allocated to a department/organization and fund based on thatposition’s allocation factors. At month end,an analysis that compares all direct charged time to that
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of allocated time by position. If,for a particular position,the direct-charged time differs by morethan 3% on a percentage basis by fund from the allocated time, a surcharge or rebate adjusts thetotals.
Section Two: Central cost
Insurance
CFR-2013 2012-title2-vol1-part225 Appendix B identifies insurance as an allowable and allocable cost.Allocating insurance expense follows the rule of “beneficiary pays” as long as the allocated costsfollow the cost drivers. In a leading practice study, presented by Washington State Auditor’s OfficePerformance Audit, Report No. 1006136, the following factors should be used to allocate insuranceexpense: number of staff (FTE), claims or loss history, square footage, property values insured, andrisk factor.
City of Bainbridge Island’s (COBI) insurance invoice is separated into five“Coverage/Program” areas; Auto Physical Damage, Boiler and Machinery, Crime/Fidelity,Liability, and Property.
To allocate the costs under each “Coverage/Program,” COBI uses three cost drivers. Theyare as follows: asset value, FTE, and loss history.
o Asset value –is used to distribute Auto Physical Damage, Boiler and Machinery, andProperty Coverage/Program expenses. The asset value by fund is taken from thefinancial statements from the most current year-end close.
o FTE –is used to distribute Crime/Fidelity and a portion of the Liability expenses.
o Loss history –is used to allocate the other portion of Liability expenses. The data is a5-year history report provided to the City by WCIA.
Interfund Rent
CFR-2013 2012-title2-vol1-part225 Appendix B requires that "less-than-arms-length" rentaltransactions, such as those between divisions of a governmental unit, are allowable in the sameamount as they would be "had title to the property vested in the governmental unit.”The CFRspecifically states that depreciation is an allowable component of such cost, and it is commonlyinterpreted as additionally allowing for the interest component of debt service.COBI uses the following methodology to allocate Interfund Rent:
For an individual facility (for example, City Hall), the total square footage is identified, andthe square footage occupied by each department is identified.
The square footage for each department is then allocated by FTE in a proportion equal tothe ratio of each fund’s FTE as a share of that department’s total FTE.
Total square footage by fund is summed across all departments in the facility and expressedas a share of the facility’s total square footage. This percentage is then applied to eligibleinterfund rent expenses
COBI allocates three types of interfund rent expenses:
o Interest expense of the bonds associated with the purchase and building of City Halland the PW Yard.
Debt service for the purchase of City Hall and the PW Yard was paid in full in2019.
o Depreciation expense of assets purchased with General Fund monies used by allpersonnel, which therefore benefits all funds.
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o A land component is also allocated. The cost of the land is divided by 40,to matchthe 40-year depreciation schedule of the buildings.
Process Overview Summary
COBI’s process to complete the cost allocation plan was:1.Determine funds, departments and object codes that are allocable.2.Discuss tasks/job duties with each staff member to determine approximately how muchtime is devoted to completing listed tasks.3.Based on discussion and job description, determine logical allocation basis.4.Calculate cost allocation for each position based on answers and data documented fromsteps 1 through 3.5.At month end, run actual data for Public Works allocation base.6.Apply any necessary rebate and surcharge costs accordingly.
Section Three:Roads and Stormwater Facilities Construction and Maintenance
Costs
The City Council completed a review of the Storm and Surface Water Utility (SSWM) in 2015 andconfirmed the policies for charging various operating costs related to the SSWM facilities, roads,and other City properties. These policies are:
Evaluate the organizationby department
Determine allocationfactors
Allocate costs
Review allocation factors
Calculate surchage andrebate if necessary
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Street Sweeping and Road Maintenance SpoilsCity charging practices for roads-related maintenance and spoils disposal has evolved and changedover the years. The following table shows the standing work order charging practice for PublicWorks O&M labor:
The data in the table indicate that the SSWM utility pays for 100% of City labor for spoils haulingand ditching, as well as 80% for street sweeping. The Streets Fund pays for the labor for shouldermaintenance and bike lane sweeping, as well as 20% for street sweeping. The justification for thecharging practice is that street sweeping aids in the maintenance of the stormwater collectionsystemso can appropriately be charged to the SSWM utility.
Water Quality and Flow Monitoring ProgramThe Water Quality and Flow Monitoring Program (WQFMP)helps the City implement NationalPollutant Discharge Elimination System (NPDES)permit monitoring requirements and directs andinforms pollutant source identification efforts outlined in the Illicit Discharge Detection andElimination (IDDE) program.The primary goal of the WQFMP is to develop and implement a long-term comprehensive monitoring program that will identify water quality and water flow problemsin freshwater and marine nearshore environments. The WQFMP also defines thresholds forinitiation of management responses in support of the City’s efforts to protect and restore beneficialuses associated with water quality on Bainbridge Island.At the July 12th 2016,Council Meeting, Council approved the WQFMP costs to be funded by 50%General Fund, 40% Stormwater Fund, and 10% Water Fund.
Groundwater Management ProgramGroundwater is the sole source of drinking water on Bainbridge Island. Therefore,it is essential tohave a thorough understanding of the island’s complex aquifer system through scientific study andlong-term monitoring. At present, the city collects monthly water level data and annual chloridemeasurements from approximately 30 wells on the Island at various locations. Water level data isused to help assess the quantity of water in different aquifers, and the chloride data is an indicatorof seawater intrusion.City Policy is that the Groundwater Program be entirely funded by the General Fund.
Kitsap Conservation District Farm AssistanceBainbridge Island currently has over 1,300 acres of agricultural lands. Many of these farms arerequired to establish and implement farm plans in accordance with provisions in the City’sMunicipal Code. The City and the Kitsap Conservation District (KCD) share a common goal topromote Best Management Practices to protect water quality, provide education to landownersregardingagricultural impacts and support the use of Low Impact Development practices. Well-designed conservation practices increase farm productivity while protecting water quality andreducing soil erosion. KCD has the expertise and experience to provide Farm Plans to meet the
Spoils Related Work Order Charges
WO#WO Type WO Description Split Org Org Description
14916 Standing Spoils Hauling 100 73431835 SSWM Maintenance
14917 Standing Street Sweeping 80/20 73637945 Allocation SSWM/Streets
14963 Standing Ditching 100 73431835 SSWM Maintenance
14823 Standing Shoulder Maintenance 100 73111427 Streets Roadside
14964 Standing Bikelane Sweeping 100 73111423 Streets Roadway
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requirements of Bainbridge Island Municipal Code Section 18.09.030 and provide assistance onland management activities and their impacts on natural resources. In providing these services,KCD assists with compliance of the City’s NDPES permit, including assistance with the IDDEProgram and education/outreach.The value of the annual contract with the KCD has been approximately $40,000, and an annualanalysis of program tasks by city staff has determined that approximately 50% of the activitiesunder the program tasks support water quality benefits. Therefore,the SSWM utility will pay 50%of the KCD billing under this agreement, and the General Fund will pay 50%.
Roads and SSWM Capital Improvement ProjectsCity Ordinance 2012-06 exempted City-owned rights-of-way from payment of SSWM fees.Thejustification for this charging methodology under Section 2.A. of the ordinance was that City streetswere responsible for contributing at least $27 million in stormwater infrastructure over and abovewhat would be needed for just street runoff.In order to continue this exemption from stormwater fees for City streets, all future stormwaterinfrastructure required in the construction or improvements of City streets, or non-motorizedfacilities as part of or separate from City streets, will be paid by an appropriate tax supportedrevenue source. This includes the construction of collection and piping systems that replaceexisting drainage ditch systems.Costs for repair and replacement of existing stormwater systems that were constructed as part ofthe City streets,including culverts, will be paid by SSWM utility funds.
Allocation Information by Department
The following pages allocation factors for each position in departments in which cost allocationapplies to personnel costs.Departments shownExecutiveFinance & AdministrationPlanning and Community DevelopmentPublic WorksDepartments not shown because their costs are entirely supported by the General FundCity CouncilMunicipal CourtPublic Safety
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Numerical Allocations Used
Basis Data Description
Community Support 100% General Fund Community Support
FTE by Fund
Average of Hours Worked
2021-2023 2019-2021 Personnel Mgmt
General Mgmt
Average of operating costs
2021-2023 2019-2021 General Mgmt
Council Agenda Items
Average of agenda Items
evaluated and assigned by
Fund 2021-2023 2019-2021 Council Agenda Items
Public Records Request
Average of requests
evaluated and assigned by
Fund 2021-2023 2019-2021
Public Records
Request
Litigation Expense
Average of Legal Costs
2021-2023 2019-2021 by
Fund Litigation Expense
Risk Mgmt
Average of Costs Incurred
2021-2023 2019-2021 Risk Mgmt
Exec Contract Mgmt
Average Contract Amounts
for Executive 2021-2023
2019-2021
Exec Contract Mgmt
(100% General Fund)
Contract Mgmt
Average Contract Amounts
2021-2023 2019-2021 Contract Mgmt
AP Invoices
Average of invoice count
2021-2023 2019-2021 AP Vouchers
Receipts
Average of receipt count
2021-2023 2019-2021 Receipts
Avg of Direct Reports
Average of direct reports to
a Manager Avg of Direct Reports
UB Customers
Average of Number of
accounts 2021-2023 2019-
2021 Utility Billing
Operating Projects
Average of Operating
Project Costs 2021-2023
2019-2021 Operating Projects
Capital Projects
Average of Capital Project
Costs 2021-2023 2019-2021 Capital Projects
Long Term Debt Average of Debt Service Long Term Debt
General Customer Service 100% General Fund Business Management
Utility Tax 100% General Fund Utility Tax