Meeting Type: BCC Regular Meeting
Meeting Date: 4/2/2024
Item Status: New
From: Roger H. Rendleman, County Administrator
Submitted by: Anu Gary, Administrative Services Manager
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ITEM TITLE
Title
Repealing Policy #8.7 - Financial Policy for Emergency Reserves and Amending Baldwin County Commission Policy #8.22 - Financial Management Policy
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STAFF RECOMMENDATION
Recommendation
Take the following actions:
1) Repeal Baldwin County Commission Policy #8.7 - Financial Policy for Emergency Reserves; and
2) Adopt the revised Baldwin County Commission Policy #8.22 - Financial Management Policy, with amendments to the reserve balances section of the policy as follows:
RESERVE BALANCES POLICY:
1. Purpose. The County Commission believes that sound financial management requires that sufficient funds be maintained by the County for unanticipated expenditures and revenue shortfalls during the fiscal year as may be caused by economic downturns in local/state/federal levels, natural disasters, and other unforeseen circumstances. Maintaining such funds will help sustain the stability of the County's finances and reduce the need for short-term borrowing.
2. Objective. The County Commission's objective is for a minimum of thirty percent (30%) of the annual budgets, less capital, for the two main operational funds (General and Highway) to be set aside in reserves for the purpose stated above. In addition, the Highway Fund will include an additional $2.5 million reserve for emergency infrastructure needed on County highways and roads.
3. Use of Reserve Balance. The use of reserve fund balances will require an adopted County Commission Resolution specifying the amount to be allocated from the respective reserve along with a reason identified in the purpose section above including how the event/reason was unforeseen and unable to address without the use of reserve fund balances.
4. Maintaining Reserve Fund Balances. During the annual budget process, the reserve fund balance will be reviewed for the adequacy of meeting the objective of this policy. If use of the reserve balance and/or amount of the existing reserve balance in the General Fund and/or Highway Fund fails to meet the objective of this policy, the County Commission will adopt a plan by resolution to replenish the reserve balance(s) within a time frame of one to three fiscal years including the means to meet the objective.
UNASSIGNED BALANCES POLICY:
1. Purpose. The County Commission believes that sound financial management requires that sufficient funds be maintained by the County for one-time projects or other capital purchases needs identified during the budget process or opportunities which arise from time to time during a fiscal year.
2. Objective. The County Commission's objective is for a minimum range of five to ten percent (5% - 10%) of the annual budgets, less capital, for the Unassigned Fund Balance in the General Fund and Highway Fund to be maintained for one-time projects or capital needs.
3. Use of Unassigned Fund Balances. The use of the unassigned fund balance should not be used for ongoing operational type expenditures. Only one-time projects or capital needs should be considered for use of unassigned fund balance as a funding source.
4. Reporting the Use of Unassigned and Assigned Fund Balances. When unassigned fund balances are utilized as a revenue source, the budgeting action shall indicate whether the proposed funded expenditure is an only time project or capital need. In addition, the requested action shall provide the percentage of remaining unassigned fund balance available if the action is approved relative to the range stated in the objective of this policy.
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BACKGROUND INFORMATION
Background: Baldwin County Commission currently has two different policies addressing reserve fund balances which are:
Policy #8.7 Financial Policy for Emergency Reserves
The County Commission will maintain emergency reserves in the General, Highway, and Solid Waste funds.
This policy is to establish parameters for maintaining emergency reserve accounts and how they can be expended. The target reserves for the three major funds are:
General Fund: 15.0% of the total non-grant revenue of the previous fiscal year
Highway Fund: 15.0% of the total non-grant revenue of the previous fiscal year
Solid Waste Fund: 7.5% of the total non-grant revenue of the previous fiscal year
A Section Within Policy #8.22 Financial Management Policy
1. Purpose. The County Commission believes that sound financial management requires that sufficient funds be maintained by the County for unanticipated expenditures and revenue shortfalls during the fiscal year as may be caused by economic downturns in local/state/federal levels, natural disasters, and other unforeseen circumstances. Maintaining such funds will help sustain the stability of the County's finances and reduce the need for short-term borrowing.
2. Objective. The County Commission's objective is for twenty percent (20%) of general fund budget expenditures to be set aside as a reserve in a planned and consistent manner and that these moneys may not be spent for regular County expenditures to maintain the County's creditworthiness. (currently 23.2%)
These policies are inconsistent with the percentage of target reserves, and one only addresses the General Fund while the other also includes the Highway Fund and Solid Waste Fund.
The main operational funds need to maintain a certain level of reserve fund balance for unanticipated expenditures and revenue shortfalls during the fiscal year as may be caused by economic downturns in local/state/federal levels, natural disasters, and other unforeseen circumstances. With the move of the Solid Waste Department to a Solid Waste Authority, we need a policy for the General Fund and the Highway Fund as the two main operational funds for the Baldwin County Commission.
Traditional fund balance reserves were about two months of operations (17%). The Governmental Financial Officers Association released a best practices fund balance guideline which encourages doing a self-assessment based on risk from natural disasters, on risk from economic downturns and on risk of dependance on state and federal resources for ongoing operations.
Baldwin County is at high risk with natural disasters from tropical systems, especially strong hurricanes. Although the County’s economic base is expanding more away from just agriculture and tourism, Baldwin County is still a moderate to a high risk to economic downturns. Baldwin County Commission is a low risk from dependance on state and federal resources for ongoing operations. Based on these factors, the recommendation to establish thirty percent (30%) of the annual budget, less capital, for the two main operational funds as the reserve fund balance for the General Fund and Highway Fund. Considering that the County has a significant amount of infrastructure which could be affected in a non-disaster declared storm, the recommendation is also to include an additional $2.5 million reserve for emergency infrastructure needs on County highways and roads in the Highway Fund along with the reserve fund balance.
In addition, the Governmental Financial Officers Association’s best practices fund balance guidelines also encourages sufficient unassigned balances be maintained by the County for one-time projects or other capital purchases needs identified during the budget process or opportunities which arise from time to time during a fiscal year. The recommendation is to establish a minimum range of five to ten percent (5% - 10%) of the annual budgets, less capital, for the unassigned fund balance in the General Fund and Highway Fund to be maintained for one-time projects or capital needs.
Previous Commission action/date: N/A
FINANCIAL IMPACT
Total cost of recommendation: N/A
Budget line item(s) to be used: N/A
If this is not a budgeted expenditure, does the recommendation create a need for funding? N/A
LEGAL IMPACT
Is legal review necessary for this staff recommendation and related documents?
N/A
Reviewed/approved by: N/A
Additional comments: N/A
ADVERTISING REQUIREMENTS
Is advertising required for this recommendation? N/A
If the proof of publication affidavit is not attached, list the reason: N/A
FOLLOW UP IMPLEMENTATION
For time-sensitive follow up, select deadline date for follow up: N/A
Individual(s) responsible for follow up: Administration
Action required (list contact persons/addresses if documents are to be mailed or emailed): Email Commission action notification to Finance and Budget Departments.
Additional instructions/notes: Admin - Update Policy Books and upload to BCAP.