City of Boise FY 2012/2013 Biennial Budget
FUND BALANCE & RETAINED EARNINGS SUMMARY
INTRODUCTION Beginning and ending fund balances, reserves, and designations provide indications of the financial position of each fund. Fund position analysis is a key effort in long-term financial planning and in building the Two Year Budget. The Fund Overview schedule provides prior year audited “actuals” for the two previous fiscal years, adopted budget amounts for the current fiscal year, and planned use of fund balance or retained earnings for the next two years. Beginning and ending fund balance dollar amounts for all City funds are shown on the Fund Balance schedule. CATEGORIES Fund balance and retained earnings measure the City’s financial capacity and position at any point in time. The City monitors fund balances quarterly, whenever any significant financial plans are considered (such as a major capital project), and in the Comprehensive Annual Financial Report (CAFR). Fund balance and retained earnings categories include the following:
Reserved Commitments represent amounts for which the City is legally responsible, such as repayment guarantee amounts of bond issues, encumbrances, dedicated purposes, capital repairs, replacements or expansion, and inventory. Reserves are established for commitments made in executed contracts and can change only in accordance with changes to those documents. Reserved funds are committed and cannot be reallocated or used for other purposes.
Designations are made by City Council resolution or other official action, fund balance for specific uses such as future capital projects, re-budgeted projects from prior fiscal years, to protect the City from financial adversity and preserve its fiscal integrity, or other planned activities. Designated funds are committed only by policy, not by law or legal commitment. The City Council may choose to reallocate them to other purposes. Designated fund balances reflect officially approved priority uses and as such are deemed unavailable. However, they are somewhat discretionary, unlike reserves.
Available Fund Balance is the remaining balance after all obligations (reserves and designations) are deducted. These amounts are “unreserved and undesignated” fund balance and are available for allocation.
The City’s policy is to review the unreserved, undesignated fund balance quarterly and to allocate available funds periodically, especially in the taxing funds. TAX FUNDS General Fund – For FY 2012 and FY 2013, the Mayor’s proposed budget includes estimated cost of all approved commitments, including funding for approved reserves and contingencies. At the end of each fiscal year, the Mayor recommends allocation of any unused monies according to a predetermined list of unfunded priorities. The list of unfunded priorities is initially created during the budget development process. The City continually reviews one-time requests and changes to the
City of Boise FY 2012/2013 Biennial Budget
FUND BALANCE & RETAINED EARNINGS SUMMARY
Capital Improvement Plan. As items are reviewed, the City Council will amend and update the unfunded priority list. The FY 2012/2013 Biennial Budget includes the use of $245,000 in each fiscal year for continued operating support of Allumbaugh House (Detox Facility). The City established the Detox Reserve in FY 2006, and funded the reserve from one-time payments received from the State as repayment for use of liquor tax revenues. Additionally, the FY 2012/2013 Biennial Budget proposes use of Cash Flow Reserve amounting to about $1.8 million in FY 2012 and nearly $1.3 million in FY 2013. This will result in a 5% cash flow reserve from the current 7% reserve target. Capital Fund - The Capital Fund balance is primarily reserved for approved multi-year projects or dedicated to specific project types. Unallocated and available balances are the result of cash transfers from the General Fund as the projects progress. During FY 2011, the City created an Impact Fee Fund to account for capital projects funded from the City’s three impact fees – parks, fire, and police. Additionally, during FY 2011, the City created the Heritage Fund to track donations received and their designated use. These two new funds resulted in a transfer of fund balance from the Capital Fund. Foothills Levy Fund – During 2001, voters approved a serial levy in the total amount of $10 million to purchase land in the Boise foothills for the preservation of natural habitat and continued public access. At the end of FY 2010, the remaining balance was nearly $106,800. The City will continue to negotiate critical land deals during FY 2012 and FY 2013. Impact Fee Fund – The fund balance in the Impact Fee Fund consists of prior year accumulated monies to complete related park, fire, and police projects. It is anticipated that moderate amounts of impact fee funds will be used for new proposed projects while a majority is planned for use to develop the Marianne Williams park site. ENTERPRISE FUNDS Retained earnings of the City’s enterprise funds include unreserved resources. However, unlike the tax-supported funds, most of the resources are not liquid and represent capital assets. Monies are generally accumulated to support capital replacement and/or expansion needs. Airport Fund – The Airport Fund accounts for operation and management of the City’s airport terminal. All revenues such as terminal rent, landing and jet way fees, parking fees, and other charges at the airport, as well as the expenditures that support the maintenance and general operation of the facility are tracked in this fund. Capital improvements for the airport are primarily funded from Federal Aviation Administration (FAA) grants, Passenger Facility Charges (PFC’s), and Customer Facility Charges (CFC’s). Airport’s proposed use of retained earnings for capital expansion for FY 2012 is more than $6.4 million, and for FY 2013 is $5.9 million. Airport’s capital improvement plan includes projects for
City of Boise FY 2012/2013 Biennial Budget
FUND BALANCE & RETAINED EARNINGS SUMMARY
taxiway, apron and runway pavement rehabilitation, miscellaneous paving projects, a new parking garage, baggage system upgrades, building demolition and road improvements. Sewer Fund – The Sewer Fund is an enterprise fund that completely supports the management and operation of the City’s sewer system. The City charges customers user fees to fund the operating expenses and capital improvements. Connection fees fund the cost of line and trunk extensions. When land is developed, the City charges the developer for the cost of installation of sewer trunk lines. The individual property owner is charged to extend the trunk lines to the structure. Sewer Fund retained earnings are accumulated to fund expansion, capital replacements and repairs. More than $44.8 million is committed to the completion of several large capital projects. For FY 2012, the fund anticipates the use of $8.8 million in retained earnings for new capital expenditures. For FY 2013, approximately $6.8 million of retained earnings will be used to execute the proposed capital plan. Geothermal Fund – Geothermal is a clean, renewable energy source, making it an attractive choice to customers. The City charges customers a geothermal rate to cover operating costs and fund depreciation of assets. The current rates charged are competitive with natural gas rates. Like many of the other enterprise funds, the City accumulates monies to support capital improvement projects and operating needs. Currently the City continues to progress on the expansion of the system to include Boise State University, and there are no plans to use retained earnings. In FY 2012, a small amount of money is budgeted for an engineering study involving the supply well houses. Irrigation Fund – In FY 1997, the City initiated a Municipal Irrigation System to provide nonpotable, pressurized irrigation water within the city limits. The City provides this service upon request of homeowner associations, developers or similar parties. Retained earnings are comprised solely of contributed assets and therefore are not available. Over the next two years, the City will continue to develop long-term plans and coordinate with irrigation service providers to ensure that water rights are being maintained and that water is being utilized in the most appropriate manner. Small operating surpluses are budgeted in FY 2012 and FY 2013 to fund a portion of the fund’s depreciated assets. Solid Waste Fund – The Solid Waste Fund is an enterprise fund that completely supports the management and operation of the City’s solid waste system. The City currently contracts with Allied Waste Services (AWS) to meet the City’s solid waste disposal needs. The City charges users a fee based on the type of business or residential occupancy. The City extended the franchise agreement with AWS and became effective on January 1, 2009, for an additional ten years. It expires January 1, 2019. As part of the ten-year contract, AWS reimbursement rates are negotiated annually. Proposed use of fund balance assumes a status quo contract with AWS and no rate increases. Contract negotiations with AWS occur in the fall, and a rate reduction in the contract is anticipated. City staff will make customer rate recommendations following AWS contract negotiations. The City targets a 45-day cash/investment reserve for day-to-day operations and to fund contingency events.
City of Boise FY 2012/2013 Biennial Budget
FUND BALANCE & RETAINED EARNINGS SUMMARY
OTHER FUNDS Community Development Fund – The Community Development Fund supports capital projects and programs benefiting low/moderate income citizens funded through federal block grants. With the federal grants, the City invests in the acquisitions and/or development of affordable housing, services for the low/moderate income citizens, economic development activities and public facilities. The City does not maintain any retained earnings in this fund, since all expenditures are reimbursed during the fiscal year. Economic Development Fund – The Economic Development Fund (EDF) primarily supports maintenance and repair of the city-owned railroad track and right of way as well as business attraction and expansion opportunities in the industrial area near Eisenman Road and the city rail. Revenue in FY 2012 is from a short-term rail lease. The City plans to use that revenue and most of the retained earnings during FY 2012 and FY 2013 to repair and improve the city-owned rail in accordance with the City’s economic development initiatives for the industrial park area. Heritage Fund – The Heritage Fund was established in FY 2011 to account for monetary donations from individuals, organizations, and corporations for park projects, capital improvements, memorials, facility maintenance, scholarships, sponsorships for recreational programs, etc. Donations are documented to record the intention of the donor and earmarked for use in the appropriate manner. Fleet Services Fund – The Fleet Services Fund is an internal service fund and accounts for the cost of operating a maintenance facility and full maintenance crew for the City’s automotive equipment. The City uses the unreserved Fleet Service fund balance to meet operating shortfalls and capital needs of the maintenance program. Community Infrastructure District Fund – Idaho Code Title 50 Chapter 31 allows for the creation of Community Infrastructure Districts to encourage the funding and construction of regional community infrastructure in advance of actual development growth. In 2010, Boise created the state’s first CID in order to provide infrastructure within the Harris Ranch development and is accounted for in this Fund. It is primarily supported by tax levies, special assessments, bond proceeds and developer reimbursements. Debt Service Fund – The Debt Service Fund accounts for the interest and principal payments on bonds issued for tax-funded operations and capital projects. At the end of FY 2010, $115,560 was reserved to satisfy bond reserve requirements for outstanding indebtedness. City Council has designated $5,877,636 for earned and post retirement benefits. L.M. Cunningham Fund – The L.M. Cunningham Fund supports the operating costs of the City arboretum, whereby City departments purchase trees and plant material at a predetermined rate based on size and condition. The trees and plants are planted along the City right-of-ways, City parks, and other City areas. Retained earnings are available and held for unexpected shortfalls. Risk Management Fund – The City accounts for the operation of the City’s comprehensive liability and insurance programs and the Occupational Safety and Industrial Hygiene program in the Risk Management Fund. Self-insured losses are paid through the Risk Management Fund. Costs are billed directly to City departments based on exposure, actual losses, and services provided. Unreserved
City of Boise FY 2012/2013 Biennial Budget
FUND BALANCE & RETAINED EARNINGS SUMMARY
retained earnings are used to fund operating shortfalls because of unexpected losses and increased liability requirements. The City’s goal is to maintain a 90% confidence level in retained earnings. The City exceeded this goal at the end of FY 2010. In addition to a rebate declared in FY 2011, retained earnings will be used to subsidize departmental premiums during FY 2012 and FY 2013. This intentional use of retained earnings will result in a 90% confidence level and provide time for the City to implement training programs to reduce future claims costs. Workers Compensation Fund – This program was initiated in FY 1999, whereby the City funds a claim liability account and self-insured losses are paid through the Workers Compensation Fund. Costs are billed directly to City departments based on exposure, actual losses and services provided. Unreserved retained earnings are used to fund operating shortfalls because of unexpected losses and increased liability requirements. The City’s goal is to achieve a 90% confidence level in retained earnings. Similar to the Risk Management Fund, the City exceeded this confidence level at the end of FY 2010. The same rebate and subsidization strategy is proposed in the FY 2012 and FY 2013 Biennial Budget. FIDUCIARY FUNDS The City maintains trust and agency funds to account for assets held by the City in a trustee capacity for individuals, private organizations, other governments, and/or funds. Health Insurance Trust Fund – In January 2005 the City established the Health Insurance Trust Fund, in which the City funds most medical claims on behalf of its employees. Funding levels in the Health Insurance Trust Fund are maintained for “incurred but not received” (IBNR) claims. Each year this amount is actuarially determined. In addition to this liability, retained earnings are available for years when there are high or unusual utilization of health plans. During FY 2010, the Health Trustees and the City Council agreed to freeze the city’s contributions to the trust fund in an effort to reduce the amount of fund balance and IBNR liability to a targeted 20% of total expenditures. This equated to nearly $4.5 million of a targeted reduction in fund balance. Subsequently, during FY 2011, police and fire union members separated from the City sponsored health trust and established a Union Health Trust administered and sponsored by the union members. This is anticipated to further decrease the amount required for the IBNR and supporting fund balance. The City also maintains dedicated trust funds such as the Humane Society Trust and Perpetual Care Trust. These funds are trust funds held for dedicated purposes. The Housing Rehabilitation Funds account for several revolving loan funds that provide lowinterest loans for housing. Various federal grants were used to establish the existing fund balance. The collections of the loans are used to run the program and facilitate new loans to qualified citizens. The amount reserved for loans is dependent on the number of qualified loan applicants and fluctuates from year to year. These funds also include several government-sponsored stimulus programs, housing rehabilitation and supports low/moderate income rental housing. The Boise City Trust Fund accounts for items that must be held in trust for any other reason. The City also uses this fund to budget appropriation that can be transferred upon approval and resolution by City Council to other funds for such things as re-budgeted items from the prior fiscal year,
City of Boise FY 2012/2013 Biennial Budget
FUND BALANCE & RETAINED EARNINGS SUMMARY
awarded grants and donations, new programs, and unanticipated events. A contingent appropriation amount of $125 million is recommended to support re-budgeting capital projects in progress and other approved projects in various planning stages from the current fiscal year into subsequent fiscal years. The contingent appropriation is also used to provide budget for unknown events when funding sources have been identified, such as stimulus funding.
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