Memorandum

City of Lawrence

City Manager’s Office

 

To:

Dave Corliss

Interim City Manager

From:

Debbie Van Saun

Asst. City Manager

cc:

Casey Liebst, Budget Manager

Ed Mullins, Finance Director

Date:

June 30, 2006

Re:

Transfers and Achieving Fund Balance Goals

 

Within the General Fund, there is a portion of the Finance Department budget that accounts for various transfers that are made from the General Fund to other funds.  These transfers are described below.

 

Employee Health Insurance

This line item provides a transfer of funding to the employee health insurance fund for all City employees funded through the General Fund.  For the other operating funds (recreation, water and sewer, golf course, etc.), transfers are similarly budgeted to the Employee Health Insurance fund to cover employee health insurance costs.  Each year, the Health Care Committee submits for City Commission approval a health care plan that provides a per employee cost for current employees, retirees, and new positions.  Once approved these costs are then allocated within each operating fund based on the number of employees.  For 2007, those costs are $7,211/FTE, $1,339/FTE, and $7,834/FTE respectively.  The total transfer for 2007 from this line item in the General Fund is budgeted at $3,584,119 - $3,435,104 for current employees, $74,592 for retirees, and $74,423 for new positions.

 

Liability Reserve

In 2006, we began a practice of paying all general liability claims out of the Liability Reserve fund in order to account for all activity relative to this function in one fund.  To provide ongoing resources to that fund, annual transfers from the General Fund and other funds to the Liability Reserve fund are being made.  In 2007, we have budgeted $200,000 for this transfer from the General Fund.  The Water and Sewer fund is budgeting a $50,000 transfer in 2006 to this fund.

 

Worker’s Compensation Reserve

Similar to the practice that was initiated in 2006 for the Liability Reserve fund, we began paying all worker’s compensation claims out of the Worker’s Compensation Reserve fund in 2006.  In 2007, we have budgeted a $300,000 transfer from the General Fund to the Worker’s Compensation Reserve fund.  The Water and Sewer, Solid Waste, and Stormwater funds also make transfers to this fund.  The 2007 transfers from these funds total $300,000, $250,000, and $60,000, respectively.

 

 

Housing Trust Fund

An annual transfer of $10,000 from the General Fund has been made for several years to the Housing Trust Fund and we have $10,000 budgeted for 2007.

 

Relationship Between Transfers and Fund Balance

The unencumbered fund balance should be in the range provided by the City Commission policy (15% to 30%) rather than the statutorily required budgeted fund balance of 5%  The higher fund balance is recommended to provide liquidity, protect against revenue shortfalls, and enhance our bond rating. To achieve this requirement, but still follow the City Commission’s fund balance policy of a 15 – 30% fund balance for the General Fund, we have historically underestimated revenues.  For the 2007 budget, we have proposed budgets for all funds that provide our actual revenue estimates.  In order to have no more than a 5% budgeted fund balance in the General Fund, we have budgeted some transfers that will not be made, unless we significantly exceed our revenue predictions.  This budgeting for transfers which may not be made to achieve our fund balance goals if further detailed below. 

 

Sales Tax Reserve

The City’s portion of the County-wide sales tax is receipted into the General Fund then a portion is transferred to the Sales Tax Reserve Fund.  The Sales Tax Reserve fund is a resource for parks/rec and health facility improvements as well as payment for debt service on sales tax bonds.  In order to determine how much to budget for this transfer, we take the total anticipated revenue from the County-wide sales tax and subtract the following:

·       An amount equal to approximately five mills of property tax; the sales tax was passed to provide some property tax relief to City property owners

·       A transfer to provide funding for the operations of the sales tax funded recreation. 

·       The City’s share (50%) of the operating costs for the Lawrence/Douglas County Health Department facility.  The County pays the remaining 50%.

·       The estimated revenue loss from the motor vehicle tax due to the previously noted property tax relief (the motor vehicle tax is calculated based on the property tax mill levy).

·       In 2007, a $1,000,000 transfer is budgeted from the County-wide sales tax to the Capital Improvement Reserve Fund in order to meet the statutory requirements for a fund balance not to exceed 5%.  It is probable that this transfer will not be made in 2007 if our revenue estimates are accurate.  If the transfer is not made, the revenue (County-wide sales tax) remains in the General Fund as part of the fund balance going into fiscal 2008.  In past budgets, we under-estimated sales tax revenue in order to meet the statutory requirements for the budgeted fund balance.     

 

Equipment Reserve

The Equipment Reserve fund provides resources for major equipment purchases not allocated through the operating budgets.  Examples are fire apparatus, a back up generator, and computer hardware/software purchases.  In order to provide these resources, annual transfers from the General Fund are made to the Equipment Reserve fund.  The 2007 budget anticipates a $300,000 transfer to the equipment reserve fund.

 

 

Capital Improvement Reserve

Each year, a transfer is budgeted from the General Fund to the Capital Improvement Reserve fund to provide resources for unexpected or unpredictable funding for improvement projects for City facilities, such as parking garage repairs, design work for certain public improvements, etc.  In 2006, we funded some of the street mill and overlay project from this fund, due to higher than expected bids.  The 2007 budget has a $1,500,000 transfer budgeted, but it is probable that only $300,000 of that transfer will be made.  The remaining $1,200,000 may be available to the fund balance going into fiscal 2008.  The $300,000 transfer to the Capital Improvement Reserve fund can be attributed to proposed increased franchise fee rates and will be used in 2007 for additional street maintenance projects.

 

Details regarding the transfers for the 2006 and 2007 budgets are provided for review.