Financial policies set forth the basic framework for the fiscal
management of the city. Policies, which are reviewed and approved
by the city council, will be reviewed and updated annually to ensure
that the city maintains a sound financial position in each of the
city's fund and account groups. The policy will provide guidelines
for short and long term decision making. Implementation of this policy
will:
(1)
Demonstrate
to the citizens of Alamo Heights, the investment community, and the
bond rating agencies that the city is committed to a strong fiscal
operation;
(2)
Provide
precedents for future policy-makers and financial managers on common
financial goals and strategies;
(3)
Fairly
present and fully disclose the financial position of the city in conformity
to generally accepted accounting principals (GAAP); and
(4)
Demonstrate
compliance with finance-related legal and contractual issues in accordance
with the Texas Local Government Code and other legal mandates.
(Ordinance 1705, exh. A, adopted 3/26/2007)
The budgeted funds for the city may include the following governmental
funds:
General fund which accounts for all financial resources except
those required to be accounted for in another fund, and include basic
governmental services, such as police, fire, emergency medical services,
public works, community development, streets, solid waste, parks and
administration functions, among others.
Special revenue funds (SRF) account for specific revenues that
are legally restricted for specified purposes. The city currently
budgets seven (7) SRF funds.
Debt service fund accounts for the payment of general long-term
debt principal and interest if applicable.
Capital project funds are used to account for the acquisition
or construction of major capital facilities other than those financed
by enterprise activities.
(Ordinance 1705, exh. A, adopted 3/26/2007)
(a)
The
city accounts and budgets for all governmental funds using the modified
accrual basis of accounting. This basis means that revenue is recognized
in the accounting period in which it becomes available and measurable,
while expenditures are recognized in the accounting period in which
they are incurred. Because the appropriated budget is used as the
basis for control and comparison of budgeted and actual amounts, the
basis for preparing the budget is the same as the basis of accounting.
Exceptions to the modified accrual basis of accounting include:
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Encumbrances, which are treated as expenditures in the year
they are encumbered, not when expended.
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Grants, which are considered revenue when awarded, not received.
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Principal and interest on long-term debt, which are recognized
when paid.
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General government funds include the general fund, special revenue
funds, debt service fund and general capital project funds.
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(b)
The
basic framework for preparing the budget should include the following
concepts:
(1)
Planning.
The budget process will be coordinated so
that major policy issues are identified prior to the budget approval
date. This will allow city council adequate time for consideration
of appropriate decisions and analysis of financial impacts.
(2)
Preparation.
The Charter requires "that city council
shall on the 15th day of May each year, or as soon thereafter as practicable,
prepare a budget to cover all proposed expenditures of the city for
the succeeding 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.
(3)
Proposed budget.
A proposed budget shall be prepared
by the city manager with participation of the city's department heads
and other executive staff.
a.
The
budget shall include four (4) basic segments for review and evaluation:
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Revenues.
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Personnel costs.
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Operations and maintenance.
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Capital and other non project costs.
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b.
The
budget review process will include city council participation and
will allow for sufficient time to address policy and fiscal issues
by the city council.
c.
A
copy of the proposed budget will be filed with the city secretary
when it is submitted to the city council.
(4)
Balanced budget.
The goal of the city is to balance
the operating budget with current revenues, whereby, current revenues
would match and fund on-going expenditures/expenses. Excess balances
in the operating funds from previous years would then be used for
non-recurring expenditures/expenses or as capital funds.
(5)
Adoption.
Upon finalization of the proposed budget,
the city council will hold a public hearing for citizen input, and
subsequently adopt by ordinance the final budget as amended. The budget
will be effective for the fiscal year beginning April 1st. The Annual
Operating Plan document may be submitted annually to the Government
Finance Officers Association (GFOA) for evaluation and consideration
for the Distinguished Budget Presentation Award.
(6)
Reporting.
Summary financial reports will be presented
quarterly to update the city council on the city's overall budget
and financial status.
(7)
Control and accountability.
Each department head will
be responsible for the administration of his/her departmental budget.
This includes accomplishing the programs adopted as part of the budget
and monitoring each department budget for compliance with spending
limitations. Transfers of appropriation or budget amendments require
either city council or city manager approval as outlined below.
(8)
Budget amendments.
If at any time during the fiscal
year it appears probable that the total revenues available within
any fund contained in the budget will be insufficient to meet the
total fund appropriations, the city council may authorize by ordinance
to increase estimated revenues or to decrease appropriations within
the fund. The following criteria will be used in evaluation of budget
amendments:
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Is the request necessary?
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Why was the item not budgeted in the normal budget process?
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Can a transfer be done within the Division to remedy the condition?
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Availability of revenues or funding sources must be
identified prior to adoption.
The city will amend the budget at year end, if needed, for revenue
based expenditures that exceeded budgeted amounts due to increased
revenue and recognize any grant funded expenditures for grants received
after the budget was adopted or last amended. The city may also amend
the budget if necessary as part of a mid-year review process for any
capital project timing adjustments from prior year, as well as, any
other known adjustments needed and approved at that time.
(9)
Contingency appropriations.
The budget may include a
contingency appropriation within the administrative operating department
budget. These funds are used to offset expenditures for unexpected
maintenance or other unanticipated expenses that might occur during
the year. Currently, the city maintains contingency appropriations
for insurance deductibles, unexpected legal expenses, equipment repairs
and other expenses that are difficult to anticipate or estimate.
(Ordinance 1705, exh. A, adopted 3/26/2007)
(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 on-going 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)
Realistic and conservative estimates.
Revenues will
be estimated realistically, and conservatively, taking into account
the volatile nature of various revenue streams.
(6)
Administration.
The benefits of a revenue source should
exceed the cost of levying and collecting that revenue.
(7)
Diversification and stability.
A diversified revenue
system with a stable source of income shall be maintained. This will
help avoid instabilities in 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)
Non-recurring revenues.
One-time or non-recurring revenues
should not be used to finance current ongoing operations. Non-recurring
revenues should be used only for non-recurring expenditures and not
for budget balancing purposes.
(3)
Property tax revenues.
All real and business personal
property located within the city will be valued at one hundred (100)
percent of the fair market value for any given year based on the current
appraisal supplied by the Bexar County Appraisal District.
Conservative budgeted revenue estimates result in a projected
ninety-eight (98) percent budgeted collection rate for current ad
valorem taxes. Two (2) percent of the current ad valorem taxes will
be projected as the budget for delinquent ad valorem tax collection.
For budgeting purposes, the city will forecast the current year's
effective tax rate at the current collection rate of ninety-eight
(98) percent, unless prior collection history indicates otherwise.
(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.
(6)
Intergovernmental revenues.
All potential grants will
be examined for matching requirements and must be approved by the
city council prior to making application of the grant if time allows.
It must be clearly understood that operational requirements (ongoing
costs) established as a result of a grant program could be discontinued
once the term and conditions of the program have been completed.
(7)
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 1705, exh. A, adopted 3/26/2007)
(a)
Appropriations.
The point of budget control is at the department level budget
for all funds. Any transfer or appropriation between funds must be
approved by the city council. Transfer of appropriations between departments
may be authorized by the city manager without city council approval.
(b)
Purchasing.
All city purchases of goods or services will be made in accordance
with the city's current purchasing policy and with state law. The
city's purchasing policy requires all contracts greater than twenty-five
thousand dollars ($25,000.00) be approved by the city council. Materials
and other bid items may be purchased up to the twenty-five thousand
dollar ($25,000.00) limit allowed by state law without city council
approval.
(Ordinance 1705, exh. A, adopted 3/26/2007)
(a)
All
new programs or service enhancements shall be implemented according
to council direction as a part of the budget process. In the event
additional revenues are required to implement a new program or service
enhancement, the fiscal impact of the program change will be considered
by the staff to determine if a new revenue source or increase in existing
revenue will be needed. The analysis shall include the applicability
of user fees as a source of revenue to support the new or expanded
program.
(b)
Through
the proposed budget the city shall strive to develop a balance in
major revenue sources to protect the financial stability of the city
in the event of severe fluctuation in the national and/or local economy.
This balance will maintain a diversified and stable revenue system.
The major revenue sources of the general fund are sales tax, ad valorem
taxes and all other charges for services.
(c)
Charges
for services shall be reviewed and updated as a part of the budget
process. The review will consider the cost of providing the service
and a review of similar charges in comparable cities in the region.
(d)
Revenues
shall be projected based on actual collections from the preceding
year and estimated collections of the current fiscal year, while taking
into account known circumstances that will impact revenues for the
new fiscal year. Revenue projections will be made conservatively.
(Ordinance 1705, exh. A, adopted 3/26/2007)
(a)
A cost
of service rate study will be conducted to determine a benchmark rate
necessary to fund the utility for five (5) years. Updates to the study
will be performed as recommended to ensure that the rates in effect
will fund the utility budgets. These rates should be sufficient for
funding a depreciation reserve which will accumulate resources to
replace or rehabilitate aging infrastructure which no longer can be
serviced by regular maintenance. Attempts should be made to fund the
reserve at a level approximate to annual depreciation of assets as
reported in the city's Comprehensive Annual Financial Report.
(b)
Utility
fund revenues are budgeted on the basis of a normal year, not on the
basis of forecasted extreme wet or dry years. The city will make every
reasonable effort to ensure accurate measurement of water purchased
and sold.
(Ordinance 1705, exh. A, adopted 3/26/2007)
(a)
The
city will issue only multi-year debt and the debt will be used to
fund capital projects that cannot be funded by current revenues except
as may be otherwise required by an emergency or other unforeseen circumstance.
(b)
To minimize
interest costs on issued debt, the city will structure debt with maturities
not to exceed the life of the assets funded. Longer issues may be
authorized in the unusual case of a substantially longer life or other
extenuating circumstances. The final maturity date for any multi-year
debt will not exceed the expected useful life of the capital improvement
so financed.
(c)
An evaluation
of existing and projected overlapping and direct debt shall be reviewed
by the council as well as any committee appointed by the council to
develop recommendations for proposed new debt for the city. Estimates
of growth shall be conservative and consideration will be given as
to the city's future ability to repay the debt and maintain an ability
to issue additional unforeseen debt.
(d)
The
city will set appropriate debt limits in accordance with state law
and local charter. Financial limitations through appropriate debt
service coverage ratios should be established prior to insurance of
general obligation debt to positively impact bond ratings.
(Ordinance 1705, exh. A, adopted 3/26/2007)
Special revenue fund revenue sources include donations and contract
payments from intergovernmental sources. Funds received are normally
restricted for use as indicated by the contract or donor.
(Ordinance 1705, exh. A, adopted 3/26/2007)
(a)
The
proposed general fund budget shall be submitted to the city council
with a fund balance reserve of not less than four (4) months of recurring
operating appropriations.
(b)
Debt
service fund balances shall be sufficient to meet future debt service
payment of general obligation debt outstanding. A comprehensive and
routine analysis of debt capacity will be made when debt is issued
to establish a minimum required percentage of the principal to be
maintained. Debt service fund balances in excess of this requirement
may be drawn down to be used to reduce ad valorem tax revenue for
bond principal and interest payments on existing or new debt. Consideration
will be given to the impact such use would have on future tax rate
calculations.
(c)
All
other fund balances shall be maintained at a level necessary to ensure
stability in the event of a decline in revenues dedicated to that
fund. Fund balance requirements shall always be in agreement with
bond covenants.
(d)
Fund
balances which exceed the minimum levels established for each fund
may be appropriated for non-recurring capital projects or programs
or in emergency situations.
(Ordinance 1705, exh. A, adopted 3/26/2007)
(b)
The
proposed budget shall appropriate sufficient funds for operations
to maintain existing quality and scope of city services and, where
appropriate, include funds for expanded or new services.
(c)
The
city will regularly examine programs and services in order to reduce
operating cost or enhance service levels without cost increases.
(d)
Personnel
service expenditures will reflect the minimum staffing to provide
approved quality and scope of city services.
(e)
The
city will provide a competitive compensation and benefit plan to attract
and retain quality employees in order to provide high quality service.
(f)
Supply
expenditures shall be sufficient to ensure optimal productivity of
city employees. Maintenance expenditures shall be sufficient to ensure
a relatively stable level of maintenance expenditures each budget
year and to enhance and prolong the life of capital equipment and
property.
(g)
Expenditures
for new capital equipment shall be made only to enhance employee productivity,
improve quality of service, or expand scope of services.
(h)
The
city will evaluate the methods for providing public services in order
to reduce operating expenditures and/or enhance quality and scope
of services without increased costs.
(Ordinance 1705, exh. A, adopted 3/26/2007)
(a)
The
city may develop a multi-year capital budget, which identifies all
projects likely to be constructed within a five-year period. The multi-year
budget will reflect for each project the likely funding source and
timeframe for completion.
(Ordinance 1705, exh. A, adopted 3/26/2007)
This policy is designed to establish general guidelines for
managing revenue shortfalls resulting from local and national economic
downturns that adversely affect the city's revenue streams.
(1)
Immediate
action. Once a budgetary shortfall is projected, the city manager
will take the necessary actions to offset any revenue shortfall with
a reduction in current expenses. The city manager may:
(2)
Further
action. If the above actions are insufficient to offset the revenue
deficit and the shortfall continues to increase, the city manager
will further reduce operating expenses to balance the variance.
a.
Any
resulting service level reductions, including workforce reductions,
will be addressed by the city council.
(Ordinance 1705, exh. A, adopted 3/26/2007)
(a)
Accounting.
The city is solely responsible for the recording and reporting
of its financial affairs, both internally and externally. The city
treasurer 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.
In accordance with the Charter, 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 one hundred eighty (180) calendar days of the city's
fiscal year end. The CAFR shall be prepared in accordance with Generally
Accepted Accounting Principals (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 administrative and finance department
will prepare internal financial reports, sufficient to plan, monitor
and control the city's financial affairs.
(Ordinance 1705, exh. A, adopted 3/26/2007)
(a)
Cash
management and investments.
The city council has formally
approved a separate Investment Policy for the City of Alamo Heights
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.
(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 must be owned by the city.
b.
The
expected useful life of the asset must be longer than one (1) year,
or extend the life of an identifiable existing asset by more than
one (1) year.
c.
The
original cost of the asset must be at least five thousand dollars
($5,000.00).
d.
The
asset must be tangible.
e.
On-going
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 start up costs and engineering or consultant-type
fees as part of the asset cost once the decision or commitment to
purchase the asset is made. The cost of land acquired should include
all related costs associated with its purchase.
(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)
Contributed capital.
Infrastructure assets received
from developers will be recorded as equity contributions when they
are received.
(5)
Distributions systems.
All costs associated with public
domain assets, such as streets and utility distribution lines will
be capitalized in accordance with the capitalization policy. Costs
should include engineering, construction and other related costs including
right of way acquisition.
(6)
Reporting and inventory.
The administrative and finance
department 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 1705, exh. A, adopted 3/26/2007)
(a)
Grants.
All potential grants will be examined for any matching requirements
and the source of those requirements identified. Grant funding will
be reviewed to clearly identify funding sources, outcomes and other
relevant information for presentation and approval by the city council.
The city council must authorize acceptance of any grant awarded.
(b)
Use
of reserve funds.
The city may authorize the use of reserve
funds to potentially delay or eliminate a proposed bond issue. This
may occur due to higher than anticipated fund balances in prior years,
thus eliminating or reducing the need for debt proceeds, or postpone
a bond issue until market conditions are more beneficial or timing
of the related capital improvements does not correspond with the planned
bond issue. Reserve funds used in this manner are replenished upon
issuance of the proposed debt. A reimbursement ordinance will be adopted
to authorize replacement of these reserves.
(c)
Leases.
The city may authorize the use of lease financing for certain
assets when it is determined that such an arrangement is advantageous
to the city.
(Ordinance 1705, exh. A, adopted 3/26/2007)
These policies should be used to frame major policy initiatives
and be summarized in the budget document. These policies address both
the need for a long-term view and the fundamental principle of a balanced
budget.
(Ordinance 1705, exh. A, adopted 3/26/2007)
