| AGENDA ITEM #: 8. DATE: 02/08/2021 CAR #: {ud_fi4} |
 |
CITY COUNCIL ACTION REPORT
| SUBJECT: | ADOPT FY2022 FINANCIAL POLICIES |
| STAFF PRESENTER(S): | Doug Sandstrom |
OTHER PRESENTER(S):
None.
SUMMARY:
Each year the Council adopts the Financial Policies that guide budget development and financial practices.
The proposed Financial Policies include changes discussed in the Work Session on February 1, 2021, which includes increasing to $5.6 million the amount of construction sales tax allocated to ongoing purposes, revisions to the strategic planning and asset management items to align with practice, and minor corrections to other items. In addition, a new policy designating that the most restrictive eligible funding source be used first.
The proposed Financial Policies include changes discussed in the Work Session on February 1, 2021, which includes increasing to $5.6 million the amount of construction sales tax allocated to ongoing purposes, revisions to the strategic planning and asset management items to align with practice, and minor corrections to other items. In addition, a new policy designating that the most restrictive eligible funding source be used first.
Recommendation:
Adopt the Financial Policies as presented in Attachment 1. (Doug Sandstrom, Finance Director)
FISCAL IMPACT:
These policies guide budget development. The recommended action does reclassify or shift an additional $500,000 of Construction Sales Tax to ongoing status in the General Fund. Whether the change in the amount allocated to ongoing General Fund is approved or not, the total Construction Sales Tax revenue estimated is unchanged.
BACKGROUND AND PREVIOUS ACTIONS:
The Financial Policies are adopted annually. The last update was in February 2020.
These proposed revisions were discussed at a Work Session on February 1, 2021 as part of the FY2021 and FY2022 update and five-year General Fund forecast. The information on historical Construction Sales Tax revenue collections was presented at the February 2021 Work Session and at a Council Retreat in November 2020.
These proposed revisions were discussed at a Work Session on February 1, 2021 as part of the FY2021 and FY2022 update and five-year General Fund forecast. The information on historical Construction Sales Tax revenue collections was presented at the February 2021 Work Session and at a Council Retreat in November 2020.
STAFF ANALYSIS
Financial Policies
The adopted financial policies call for an annual review of the portion of General Fund Construction Sales Tax allocated to ongoing purposes. The analysis of revenue for the most recent ten-years as shown in the following table has been used to assess the base level of Construction Sales Tax revenue that would persist through an economic trough to support ongoing operations. Using the lowest of these measures, would set the ongoing portion of Construction Sales Tax at $5.6 million and was also the same basis used to set the current level.
The adopted financial policies call for an annual review of the portion of General Fund Construction Sales Tax allocated to ongoing purposes. The analysis of revenue for the most recent ten-years as shown in the following table has been used to assess the base level of Construction Sales Tax revenue that would persist through an economic trough to support ongoing operations. Using the lowest of these measures, would set the ongoing portion of Construction Sales Tax at $5.6 million and was also the same basis used to set the current level.
General Fund Constructions Sales Tax Collections Analysis – FY2011 through FY2020
| Analysis of Annual Average Revenue | Result | |
| Lowest 5 of the 10 Years | $ 5.6 million | |
| Most Recent 10 Years | $ 8.7 million | |
| Most Recent 5 Years | $ 11.9 million |
The General Fund forecast presented earlier this month estimates Construction Sales Tax revenue to exceed $12 million per year through FY2027.
A new financial policy is also proposed to prioritize the use of the most restrictive funding source first when more than one funding source is eligible for a particular expense. An example would be if bond funds were available for a project, more restrictive bonds would be allocated before less restrictive operating funds.
Other changes are to better align existing financial policies with current practice with the most significant revisions made to the strategic planning and asset management related policies. All the changes are shown in the attachment.