RES 2016-03 ESTABLISHING A CONSOLIDATED SET OF UPDATED FINANCIAL AND BUDGET POLICIESRESOLUTION NO. 2016-03
A RESOLUTION of the City of Bainbridge Island,
Washington, establishing a consolidated set of
updated financial and budget policies,
supplementing, superseding, amending and/or re-
affirming certain policies adopted by the City during
or prior to 2016.
WHEREAS, the City Council (the "Council") is responsible for setting financial policy for the
City of Bainbridge Island (the "City"); and
WHEREAS, the Revised Code of Washington 35.A.33 provides guidance for Budgets in Code
Cities; and
WHEREAS, the Revised Code of Washington 35.A.34 authorizes cities to establish biennial
budgets, under which authorization, and the authorization of the Bainbridge Island Municipal code
2.82, the City prepares a biennial budget with a mid -biennial review; and
WHEREAS, in the past, the Council has passed several resolutions related to financial policies
that continue to guide City financial practices, including, but not limited to, Resolution No. 1993-
52, which established investment policies; and Resolution No. 2008-01, which established an
Emergency Rainy Day Reserve Fund and a Contingency Reserve within the General Fund; and
Resolution No. 2008-14, which established debt management policies; and Resolution No. 2010-
35, which set targets for General Fund reserves; and Resolution No. 2013-13, which provided that
funds from the City's utilities shall not be expended for general governmental services; and
Resolution No. 2014-17, which set a minimum fund balance policy for the General Fund; and
WHEREAS, the City Administration ("Administration") requests that, as part of the 2017-18
biennial budget process, Council update, rescind, amend and/or re -affirm several financial and
budgetary policies that were initially adopted by the City during or prior to 2016; and
WHEREAS, the Council and Administration wish to establish an ongoing consolidated set of
Financial and Budget Policies (the "Financial Policies") to be administered by the Administration
and to guide Council action on an ongoing basis.
THE CITY COUNCIL OF THE CITY OF BAINBRIDGE ISLAND DOES RESOLVE AS
FOLLOWS:
Section 1. PURPOSE
The primary purpose of financial 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 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.
City programs and services support achievement of the following results, as identified and
approved by the City Council:
• Green, Well -Planned Community
• Healthy and Attractive Community
• Reliable Infrastructure and Connected Mobility
• Safe City
• Vibrant Economy
• Good Governance
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.
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.
On a periodic basis, Building and Development Services (B&DS) rates shall be reviewed, with a
goal of revenues contributing approximately seventy-five percent (75%) of expenditures on a
planning basis 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 in to account.
SECTION 4. EXPENDITURES
The City budget will provide for a sustainable level of service to meet the City's identified results.
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.
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 Lund Miaiinlum Ftind Balance. The City shall maintain a minimum fund balance of 25%
of ongoing 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.
Utility Fund Reserves
Capital Contiii renc Resex . 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.
Operating Reserve - Water aiid Sewer Funds. These reserves shall have a targeted level as of each
year-end of at least sixty (60) days' 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 Deserve - Storni acid Sffl'ate Water Management Ftind. This reserve shall have a
targeted level as of each year-end of at least 90 - 120 days' operating expenses. The primary
purpose of the 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 a Comprehensive Annual 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.
SECTION 8. DEBT
The City's Debt Policy, as it may be amended from time to time, is hereby included in the 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 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.
PASSED by the City Council this 12th day of April, 2016.
APPROVED by the Mayor this 12th day of April, 2016.
1 To son, ayor
ATTEST/AUTHENTICATE:
Rosalind D. Lassoff, City Clerk
FILED WITH THE CITY CLERK:
PASSED BY THE CITY COUNCIL:
RESOLUTION NO.:
March 15, 2016
April 12, 2016
2016-03