(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:
(1) 
Fairly present and fully disclose the financial position of the city in conformity to generally accepted accounting principles (GAAP); and
(2) 
Demonstrate compliance with finance-related legal and contractual issues in accordance with the Texas Local Government Code and other legal mandates.
(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:
(1) 
Revenues.
(2) 
Personnel costs.
(3) 
Operations and maintenance.
(4) 
Capital and other non-project costs.
(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:
(A) 
Safety of the principal invested.
(B) 
Liquidity and availability of cash to pay obligations when due.
(C) 
Receive the highest possible rate of return (yield) consistent with the city’s investment policy.
(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:
(A) 
Certificates of deposit.
(B) 
U.S. Treasury and agency securities.
(C) 
Investment pools that meet the requirements of the PFIA.
(D) 
No-load money market mutual funds.
(E) 
Fully collateralized repurchase agreements.
(F) 
Other investments as approved by city council and not prohibited by law.
(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:
(A) 
Grants.
(B) 
Use of reserve funds.
(C) 
Use of current revenues.
(D) 
Contributions from developers and others.
(E) 
Leases.
(F) 
Impact fees.
(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:
(A) 
When the project will have a significant impact on the tax rate;
(B) 
When the project may be controversial even through it is routine in nature; or
(C) 
When the project falls outside the normal bounds of projects the city has typically done.
(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)