(a)
The
city is committed to financial management through integrity, prudent
stewardship, planning, accountability, full disclosure and communication.
The broad purpose of the fiscal and budgetary policies is to enable
the city to achieve and maintain a long-term stable and positive financial
condition, and provide guidelines for the day-to-day planning and
operations of the city’s financial affairs.
(b)
Policy
scope generally spans areas of accounting and financial reporting,
internal controls, both operating and capital budgeting, revenue management,
investment and asset management, debt management and forecasting.
This is done in order to:
(c)
These
policies will be reviewed and updated annually as part of the budget
preparation process.
(d)
The
city accounts and budgets for all general government funds by using
the modified accrual basis. This method recognizes revenues when they
are measurable and available and expenditures when goods and services
are received, except for principal and interest on long-term debt,
which is recognized when paid. General government funds include the
general fund, special revenue funds, debt service fund and general
capital project funds. Proprietary funds, which include the enterprise
and internal service funds, are accounted and budgeted using the accrual
basis of accounting. Under this method, revenues are recognized when
they are earned and expenses when they are incurred. The budgeted
funds for the city include:
(1)
Governmental funds.
Formally presented as the general
fund, which accounts for all financial resources used for general
operations. This is a budgeted fund, and any fund balances are considered
resources available for current operations. All revenues and expenditures
not required to be accounted for in other funds are accounted for
in this fund.
(2)
Debt service fund.
Is used to account for tax revenues
and for the payment of principal, interest and related costs on long-term
debts for which a tax has been dedicated. This is a budgeted fund,
and a separate fund is maintained for this fund. Any unused sinking
fund balances are transferred to the general fund after all of the
related debt obligations have been met.
(3)
Proprietary funds.
Also known as the enterprise fund,
is used to account for operations that are financed and operated similar
to private business enterprises, where the intent of the governing
board is that the cost of providing goods or services to the general
public on a continuing basis be financed or recovered primarily through
user charges or where the governing body has decided that periodic
determination of revenues earned, expenses incurred, and/or net income
is appropriate for capital maintenance, public policy, management
control, accountability, or other purposes. The city maintains two
enterprise funds: water and wastewater.
(Ordinance 050104-1, sec. I, adopted 1/4/05)
(a)
Generally.
Budgeting is an essential element of the
financial planning, control and evaluation process of municipal government.
The “operating budget” is the city’s annual financial
operating plan. The annual budget includes all of the operating departments
of the general fund, proprietary funds, debt service funds, and capital
improvement funds.
(b)
Preparation.
The Texas Local Government Code requires
a proposed budget be prepared by the director of finance and filed
with the municipal clerk before the 30th day before the date the city
council makes a tax levy for the fiscal year. The budget shall be
adopted no later than the twenty-seventh day of the last month of
the fiscal year. No budget will be adopted or appropriations made
unless the total estimated revenues, income and funds available shall
be equal to or in excess of such budget or appropriations, except
otherwise provided. Therefore, the budget will be presented to the
city council no later than the 1st day of August to provide the city
council time to adopt the budget in the required time frame.
(c)
Proposed budget.
A proposed budget shall be prepared
by the director of finance and city manager with participation from
all department directors. The budget shall include four basic segments
for review and evaluation:
(d)
Review.
The budget review process will include city
council participation in the development of each segment and allow
for citizen participation in the process, and will allow for sufficient
time to address policy and fiscal issues by the city council.
(e)
Filing of proposed budget.
A copy of the proposed budget
will be filed with the city secretary when it is submitted to the
city council. A copy will also be made available at the city public
library for citizen review.
(f)
Adoption.
Upon finalization of the budget appropriations,
the city council will hold a public hearing, and subsequently adopt
by ordinance, the final budget as amended. The budget will be effective
for the fiscal year beginning October 1st.
(g)
Balanced budget.
The goal of the city is to balance
the operating budget with current revenues, whereby current revenues
would match and fund ongoing expenditures/expenses. Excess balances
in the operating funds from previous years would then be used for
nonrecurring expenditures/expenses or as capital funds.
(h)
Planning.
The budget process will be coordinated so
that major policy issues are identified prior to the budget approval
date. This will allow the city council adequate time for consideration
of appropriate decisions and analysis of financial impacts.
(i)
Reporting.
Summary financial reports will be presented
to the city council monthly. These reports will be in a format appropriate
to enable the city council to understand the overall budget and financial
status. The director of finance will also present quarterly reports
to the city council, within 25 days following the end of each quarter,
which update the status of projects and related financial goals set
forth in the budget. At that time any necessary request for adjustments
will be made.
(j)
Control and accountability.
Each department director appointed by the city manager will be responsible for the administration of his/her departmental budget. This includes accomplishing the goals and objectives adopted as part of the budget and monitoring each department budget for compliance with spending limitations. Department directors may transfer funds up to a total of $5,000 with city manager approval, within the line items within a departmental budget category (personnel costs, operations and maintenance or capital), without city council approval. All other transfers of appropriations or budget amendments require city council approval as outlined in section 2.04.034(b).
(k)
Contingency appropriations.
The budget may include contingency
appropriations within designated operating department budgets. These
funds are used to offset expenditures for unexpected maintenance or
other unanticipated expenses that might occur during the year.
(l)
Council contingency account.
The budget may contain
appropriated funds to be used at the discretion of the city council.
Actual expenditure of these funds is specifically approved by the
city council on an item-by-item basis.
(Ordinance 050104-1, sec. II, adopted 1/4/05)
(a)
Characteristics.
The city will strive for the following
optimum characteristics in its revenue system:
(1)
Simplicity.
The city, where possible and without sacrificing
accuracy, will strive to keep the revenue system simple in order to
reduce compliance costs for the taxpayer or service recipient.
(2)
Certainty.
A knowledge and understanding of revenue
sources increases the reliability of the revenue system. The city
will understand its revenue sources and enact consistent collection
policies to provide assurances that the revenue base will materialize
according to budget.
(3)
Equity.
The city shall make every effort to maintain
equity in its revenue system; i.e., the city should seek to minimize
or eliminate all forms of subsidization between entities, funds, services,
utilities, and customer classes, and ensure an ongoing return on investment
for the city.
(4)
Revenue adequacy.
The city should require there be a
balance in the revenue system; i.e., the revenue base will have the
characteristics of fairness and neutrality as it applies to cost of
service, willingness to pay, and ability to pay.
(5)
Administration.
The benefits of a revenue source should
exceed the cost of levying and collecting that revenue.
(6)
Diversification and stability.
A diversified revenue
system with a stable source of income shall be maintained. This will
help avoid instabilities in two [the] particular revenue sources due
to factors such as fluctuations in the economy and variations in the
weather.
(b)
Other considerations.
The following considerations and
issues will guide the city in its revenue policies concerning specific
sources of funds:
(1)
Cost/benefit of incentives for economic development.
The city will use due caution in the analysis of any incentives that
are used to encourage development. A cost/benefit (fiscal impact)
analysis will be performed as part of the evaluation.
(2)
Nonrecurring revenues.
One-time or nonrecurring revenues
should not be used to finance current ongoing operations. Nonrecurring
revenues should be used only for nonrecurring expenditures and not
for budget balancing purposes. Any excess revenues not specifically
tied to a project will be transferred to the reserve accounts. All
excess revenues must receive council approval prior to expending.
(3)
Property tax revenues.
All real and business personal
property located within the city will be valued at 100% of the fair
market value for any given year based on the current appraisal supplied
by the county appraisal district.
(4)
Interest income.
Interest earned from investments will
be distributed to the funds in accordance with the equity balance
of the fund from which the monies were provided to be invested.
(5)
User-based fees and service charges.
For services associated
with a user fee or charge, the direct or indirect costs of that service
will be offset by a fee where possible. The city will review fees
and charges no less than once every three years to ensure that fees
provide adequate coverage for the cost of services. The city council
will determine how much of the cost of a service should be recovered
by fees and charges.
(6)
Enterprise fund rates.
The city will review and adopt
utility rates as needed to generate revenues required to fully cover
operating expenses, meet the legal requirements of all applicable
bond covenants, and provide for an adequate level of working capital.
Additionally, enterprise activity rates will include transfers to
and receive credits from other funds as follows:
(A)
General and administrative charges.
Administrative costs
should be charged to all funds for services of general overhead, such
as administration, finance, customer billing, legal and other costs
as appropriate. These charges will be determined through an indirect
cost allocation following accepted practices and procedures.
(B)
Payment for return on investment.
The intent of this
transfer is to provide a benefit to the citizens for the ownership
of the various utility operations they own.
(7)
Intergovernmental revenues.
All potential grants will
be examined for matching requirements and must be approved by the
city council prior to making application for the grant. It must be
clearly understood that operational requirements (ongoing costs) set
up as a result of a grant program could be discontinued once the term
and conditions of the program have been completed.
(8)
Revenue monitoring.
Revenues, as they are received,
will be regularly compared to budgeted revenues, and variances will
be investigated, and any abnormalities will be included in the quarterly
report to the city council.
(Ordinance 050104-1, sec. III, adopted 1/4/05)
(a)
Appropriations.
The point of budget control is at the
department level budget for all funds. Any transfer of appropriations
between funds must be approved by the city council and the city manager.
(1)
Without city council approval, the city manager is authorized to
transfer appropriations between departments within the same operational
division and fund up to $10,000.
(2)
The city manager may also authorize transfer of salary adjustment
monies between funds that are budgeted in a citywide account.
(3)
The city manager may authorize the transfer of any monies in emergency
situations when the health and safety of the citizens are at risk.
(b)
Budget amendments.
The city council may authorize, with
a majority plus one vote, an emergency expenditure as an amendment
to the original budget. This may be done in cases of grave public
necessity to meet an unusual and unforeseen condition that was not
known at the time the budget was adopted. In practice, this has been
interpreted to include revenue-related expenses within the enterprise
funds and timing differences on capital improvement projects.
(c)
Purchasing.
All city purchases of goods or services
will be made in accordance with the city’s current purchasing
procedures and with state law.
(d)
Prompt payment.
All invoices approved for payment by
the proper city authorities shall be paid within thirty (30) calendar
days of receipt of goods or services or invoice date, whichever is
later, in accordance with state law. The city will take advantage
of all purchase discounts, when possible.
(e)
Risk management.
The city will pursue every opportunity
to provide for the public’s and city employees’ safety
and to manage its risks. The goal shall be to minimize the risk of
loss of resources through liability claims with an emphasis on safety
programs.
(Ordinance 050104-1, sec. IV, adopted 1/4/05)
(a)
Goals.
The city’s goal is to maintain city facilities
and infrastructure in order to provide excellent services to the customers
within the community, meet growth-related needs, and comply with all
state and federal regulations.
(b)
Preparation.
(1)
The city annually updates and adopts a five-year capital improvement
program (CIP) schedule as part of the operating budget adoption process.
The plan is reviewed and adjusted annually as needed, and year one
is adopted as the current year capital budget. The capital budget
will include all capital projects and all capital resources.
(2)
Needed capital improvements are identified through system models,
repair and maintenance records and growth demands.
(3)
A team approach will be used to prioritize CIP projects, whereby
city staff from all operational areas provide input and ideas relating
to each project and its effect on operations.
(c)
Citizen involvement.
Citizen involvement and participation
will be solicited in formulating the capital budget through neighborhood
meetings, public hearings and other forums.
(d)
Control.
All capital project expenditures must be appropriated
in the capital budget. Availability of resources must be identified
and authorized before any CIP contract is presented to the city council
for approval.
(e)
Financing programs.
(1)
Where applicable, assessments, impact fees, pro-rata charges, or
other fees should be used to fund capital projects which have a primary
benefit to specific identifiable property owners.
(2)
Recognizing that long-term debt is usually a more expensive financing
method, alternative financing sources will be explored before debt
is issued. When debt is issued, it will be used to acquire major assets
with expected lives equal to or exceeding the average life of the
debt issue.
(Ordinance 050104-1, sec. IV, adopted 1/4/05)
(a)
Generally.
The city recognizes that deferred maintenance
increases future capital costs. Therefore, a portion of all individual
funds with infrastructure should be budgeted each year to maintain
the quality within each system.
(b)
Infrastructure maintenance.
Ongoing maintenance and
major repair costs are included as capital expense within the departmental
operating budgets. These costs are generally considered system repairs
and are not capitalized for accounting purposes. They include such
items as street seal coats, water line repairs and other general system
maintenance.
(c)
Internal service funds.
The city currently utilizes
internal service funds to maintain and replace existing assets. Assessments
are made to the using funds for the use of equipment currently in
use and to be purchased during the year. In this way, suitable funds
are available for the purchase of operational assets without the issuance
of debt.
(1)
Fleet maintenance and replacement.
The city has a major
investment in its fleet of cars, trucks, tractors, and other equipment.
The city will anticipate replacing existing equipment as necessary
and will establish charges that are assigned to the using departments
to account for the cost of that replacement. Vehicle maintenance is
also allocated in this manner.
(2)
Technology.
It is the policy of the city to plan and
fund the maintenance and replacement of its computer network and other
technology systems. The city currently uses a three-year replacement
cycle for all desktop computers.
(3)
Facilities maintenance.
The city has established an
ongoing maintenance program, which includes major repairs, and equipment,
as well as contracts for maintaining city facilities. The city has
anticipated a useful life of such equipment and established a means
of charging those costs to the various departments in order to recognize
the city’s continuing costs of maintaining its facilities.
(Ordinance 050104-1, sec. VI, adopted 1/4/05)
(a)
Accounting.
The city is solely responsible for the recording
and reporting of its financial affairs, both internally and externally.
The director of finance is the city’s chief financial officer
and is responsible for establishing the structure for the city’s
chart of accounts and for assuring that procedures are in place to
properly record financial transactions and report the city’s
financial position.
(b)
Audit of accounts.
An independent audit of the city
accounts will be performed every year. The auditor is retained by
and is accountable directly to the city council.
(c)
External reporting.
Upon completion and acceptance of
the annual audit by the city’s auditors, the city shall prepare
a written comprehensive annual financial report (CAFR) which shall
be presented to the city council within 180 calendar days of the city’s
fiscal year end. The CAFR shall be prepared in accordance with generally
accepted accounting principles (GAAP) and shall be presented annually
to the Government Finance Officer Association (GFOA) for evaluation
and consideration for the certificate of achievement in financial
reporting.
(d)
Internal reporting.
The finance department will prepare
internal financial reports sufficient to plan, monitor and control
the city’s financial affairs.
(Ordinance 050104-1, sec. VII, adopted 1/4/05)
(a)
Cash management and investments.
The city council has
formally approved a separate investment policy for the city that meets
the requirements of the Public Funds Investment Act (PFIA), section
2256 of the Texas Local Government Code. This policy is reviewed annually
by the city council and applies to all financial assets held by the
city.
(1)
Statement of cash management philosophy.
The city shall
maintain a comprehensive cash management program to include the effective
collection of all accounts receivable, the prompt deposit of receipts
to the city’s depository, the payment of obligations, and the
prudent investment of idle funds in accordance with this policy.
(2)
Objectives.
The city’s investment program will
be conducted as to accomplish the following, listed in priority order:
(3)
Safekeeping and custody.
Investments may only be purchased
through brokers/dealers who meet the criteria detailed in the investment
policy, which also addresses internal controls related to investments.
(4)
Standard of care and reporting.
Investments will be
made with judgment and care, always considering the safety of principal
to be invested and the probable income to be derived. The director
of finance and administration is responsible for the overall management
of the city’s investment program and ensures all investments
are made in compliance with the investment policy. An investment report,
providing both summary and detailed information, will be presented
to the city council quarterly.
(5)
Authorized investments.
The city can currently invest
in the following:
(b)
Fixed assets.
These assets will be reasonably safeguarded
and properly accounted for, and prudently insured.
(1)
Capitalization criteria.
For purposes of budgeting and
accounting classification, the following criteria must be capitalized:
(A)
The asset owned by the city.
(B)
The expected useful life of the asset must be longer than one year,
or extend the life of an identifiable existing asset by more than
one year.
(C)
The original cost of the asset must be at least $5,000.
(D)
The asset must be tangible.
(E)
Ongoing repairs and general maintenance are not capitalized.
(2)
New purchases.
All costs associated with bringing the
asset into working order will be capitalized as part of the asset
cost. This will include startup costs, engineering or consultant type
fees as part of the asset cost once the decision or commitment to
purchase the asset is made.
(3)
Improvements and replacement.
Improvements will be capitalized
when they extend the original life of an asset or when they make the
asset more valuable than it was originally. The replacement of assets’
components will normally be expensed unless they are of a significant
nature and meet all the capitalization criteria.
(4)
Reporting and inventory.
The finance division will maintain
the permanent records of the city’s fixed assets, including
description, cost, department of responsibility, date of acquisition,
depreciation and expected useful life. Periodically, random sampling
at the department level will be performed to inventory fixed assets
assigned to that department. Responsibility for safeguarding the city’s
fixed assets lies with the department supervisor or manager whose
department has been assigned the asset.
(Ordinance 050104-1, sec. VIII,
adopted 1/4/05)
(a)
Generally.
The city recognizes the primary purpose of
capital facilities is to provide services to the community. Using
debt financing to meet the capital needs of the community must be
evaluated according to efficiency and equity. Efficiency must be evaluated
to determine the highest rate of return for a given investment of
resources. Equity is resolved by determining who should pay for the
cost of capital improvements. In meeting demand for additional services,
the city will strive to balance the needs between debt financing and
“pay as you go” methods. The city realizes that failure
to meet the demands of growth may inhibit its continued economic viability,
but also realizes that too much debt may have detrimental effects
on the city’s long-range financial condition. The city will
issue debt only for the purpose of acquiring or constructing capital
assets for the general benefit of its citizens and to allow it to
fulfill its various purposes as a city.
(b)
Usage of debt.
(1)
Debt financing will be considered for noncontinuous capital improvements
of which future citizens will be benefited. Alternatives for financing
will be explored prior to debt issuance and include, but are not limited
to:
(2)
When the city utilizes long-term financing, it will ensure that the
debt is soundly financed by conservatively projecting revenue sources
that will be used to pay the debt. It will not finance the improvement
over a period greater than the useful life of the improvement and
it will determine that the cost benefit of the improvement, including
interest costs, is positive to the community.
(c)
Types of debt.
(1)
General obligation bonds (GOs).
General obligation bonds
must be authorized by a vote of the citizens of the city. They are
used only to fund capital assets of the general government and are
not to be used to fund operating needs of the city. The full faith
and credit of the city as well as the city’s ad valorem taxing
authority back general obligation bonds. Conditions for issuance of
general obligation debt include:
(2)
Revenue bonds.
Revenue bonds will be issued to provide
for the capital needs of any activities where the capital requirements
are necessary for the continuation or expansion of a service. The
improved activity shall produce a revenue stream to fund the debt
service requirements of the necessary improvement to provide service
expansion. The average life of the obligation should not exceed the
useful life of the asset(s) to be funded by the bond issue and will
generally be limited to no more than twenty-five (25) years.
(3)
Certificates of obligation or contract obligations (COs).
(A)
Certificates of obligation or contract obligations may be used to
fund capital requirements that are not otherwise covered by either
general obligation or revenue bonds. Debt service for COs may be either
from general revenues (tax-supported) or supported by a specific revenue
stream(s) or a combination of both. Typically, the city may issue
COs when the following conditions are met:
(i)
When the proposed debt will have minimal impact on future effective
property tax rates;
(ii)
When the projects to be funded are within the normal bounds
of city capital requirements, such as for roads, parks, various infrastructure
and city facilities; and
(iii)
When the average life of the obligation does not exceed the
useful life of the asset(s) to be funded by the issue.
(B)
Certificates of obligation will be the least preferred method of
financing and will be used with prudent care and judgment by the city
council. Every effort will be made to ensure public participation
in decisions relating to debt financing.
(d)
Method of sale.
The city will use a competitive bidding
process in the sale of bonds unless a condition in the bond market
or the nature of the issue warrants a negotiated bid. In such situations,
the city will publicly present the reasons for the negotiated safe.
The city will rely on the recommendation of the financial advisor
in the selection of the underwriter or direct purchaser.
(e)
Disclosure.
Full disclosure of operating costs along
with capital costs will be made to the bond rating agencies and other
users of financial information. The city staff, with assistance of
the financial advisor and bond counsel, will prepare the necessary
materials for presentation to the rating agencies and will aid in
the production of the preliminary official statements. The city will
take responsibility for the accuracy of all financial information
released.
(f)
Federal requirements.
The city will maintain procedures
to comply with arbitrage rebate and other federal requirements.
(g)
Debt structuring.
The city will issue bonds with an
average life of twenty (20) years or less, not to exceed the useful
life of the asset acquired. The structure should approximate level
debt service unless operational matters dictate otherwise. Market
factors, such as the effects of tax-exempt designations, the cost
of early redemption options and the like, will be given consideration
during the structuring of long-term debt instruments.
(h)
Bond reimbursement resolutions.
The city council may
authorize a bond reimbursement resolution for projects when the bonds
will be issued within the term of the existing city council.
(Ordinance 050104-1, sec. IX, adopted 1/4/05)
(a)
Generally.
The city will maintain budgeted minimum reserves
in the ending working capital/fund balances to provide a secure, healthy
financial base for the city in the event of a natural disaster or
other emergency, allow stability of city operations should revenues
fall short of budgeted projections and provide available resources
to implement budgeted expenditures without regard to actual timing
of cash flows into the city.
(b)
Operational coverage.
The city’s goal is to maintain
operations coverage of 1.00, such that operating revenues will at
least equal or exceed current operating expenditures. This policy
will be introduced in fiscal year 2005, and fully implemented by fiscal
year 2007.
(c)
Operating reserves.
The city will maintain reserves
at a minimum of seventy-five (75) days (20.83%) of net budgeted operating
expenditures. Net budgeted operating expenditure is defined as total
budgeted expenditures less interfund transfers and charges, general
debt service (tax-supported), direct cost for purchased power and
payments from third-party grant monies. See reserve calculation worksheet
for 2004/05 budget.
(1)
General fund: The unobligated fund balance in the general fund should
equal at least sixty (60) days or 16.67% of annual budgeted general
fund expenditures.
(2)
Tourism fund: A minimum 45.00% of projected annual operating expenditures
will be reserved within the fund balance.
(3)
Water and wastewater funds: Working capital reserves in these funds
should be 25% or ninety (90) days.
(4)
Other funds.
(d)
Capital project funds.
Every effort will be made for
all monies within the capital project funds to be expended within
thirty-six (36) months of receipt. The fund balance will be invested
and income generated will offset increases in construction costs or
other costs associated with the project. Capital project funds are
intended to be expended totally, with any unexpected excess to be
transferred to the debt service fund to service project-related debt
service.
(e)
General debt service funds.
Revenues within this fund
are stable, based on property tax revenues. Balances are maintained
to meet contingencies and to make certain that the next year’s
debt service payments may be met in a timely manner. The fund balance
should not fall below one month or 1/12th annual debt service requirements,
in accordance with IRS guidelines.
(f)
Investment of reserve funds.
The reserve funds will
be invested in accordance with the city’s investment policy.
Existing non-cash investment would be exempt through retirement of
the investment.
(Ordinance 050104-1, sec. X, adopted 1/4/05)
(a)
Written procedures.
Wherever possible, written procedures
will be established and maintained by the director of finance for
all functions involving cash handling and/or accounting throughout
the city. These procedures will embrace the general concepts of fiscal
responsibility set forth in this policy statement.
(b)
Responsibility of department directors.
Each department
director is responsible for ensuring that good internal controls are
followed throughout their department, that all finance division directives
are implemented and that all independent auditor internal control
recommendations are addressed. Departments will follow the procedures
set up by the finance department.
(Ordinance 050104-1, sec. XI, adopted 1/4/05)
(a)
Goals.
The city’s goal as an employer is to attract
and retain quality employees who provide excellent, friendly services
to our community in an effective and efficient manner.
(b)
Staffing levels.
Staffing levels will be adequate for
the fiscal functions of the city to operate effectively. Workload
allocation alternatives will be explored before adding additional
staff.
(c)
Pay for performance.
The city will provide an incentive
program to aid in retaining quality employees and reward employees
for productivity and job performance.
(Ordinance 050104-1, sec. XII, adopted 1/4/05)
