Role of Financial Policies in Preparing the Budget

VGFOA Fall Conference

October 25, 2018

City of Suffolk

• 92,533 residents

• 14% population growth in 10 yrs.

• 430 square miles

• Urban, Suburban, and Rural

• $627.4M Budget

• 1,362 FTEs

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Historical Overview

Mid 2000s

• Rapid growth and development

• Services and amenities enhanced

• Ambitious capital program – Cultural Arts Center

– Hotel Project

– New Schools

• Took over road maintenance from VDOT

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Historical Overview

2006-2008

• Fund Balance stressed

• Unrestricted GF Cash <$1M

• Out of Compliance with Financial Policies

• Bond Ratings lowered Aa3 (Moody’s) AA- (S&P) A+ (Fitch)

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Turn the Ship Around

• Elevate Financial Vision to match the overall vision for the City

• Mayor set a goal of becoming AAA rated community

• Capital Program adjusted to reality

• Instill financial discipline

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Turn the Ship Around

• Finance Committee established to regularly review financial activity, cash management and investment, and policy compliance

• Mayor • Vice Mayor • City Manager • City Attorney • Assessor • Commissioner of the Revenue • Treasurer • Finance Director • Budget Officer

6

Turn the Ship Around

• Updated Financial Policies for appropriateness and comparability with AAA rated jurisdictions

• Implemented conservative approach to budgeting

• Restructured budget document in line with GFOA Best Practices in Budgeting

• Integrated Financial Policies into the CIP and Budget processes and documents

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Turn the Ship Around

• Began providing quarterly financial updates to City Council

• Reported financial policy compliance in budget presentations, the budget document, and during the City Council retreat

• Created narrative summaries in the budget document to demonstrate compliance with key financial policies

• Utilized key financial policy indicators as performance measures in the budget document

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Financial Policies

• Framework for overall fiscal planning and management

• Focused on the big picture rather than single issues or needs

• Clear and consistent guidelines that promote long-term financial stability

• Strengthen ability to withstand a financial crisis

• health.

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• Legal authority to spend money

• Identifies priorities and actions to address short and long-term needs and issues

• Enumerates the funding approved to address services, programs, and capital improvements

• Serves as a financial plan, policy document, operation guide, and communication device --- GFOA

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Operating Budget

Key Financial Policies

• Balanced Budget

• Debt

• Capital Pay-GO

• Asset Maintenance/Replacement

• Fees and Charges

• Revenue Diversification

• Revenue Collection

• Fund Balance

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Key Measures • Capital Pay-Go

Cash Funding equal to 3% of General Fund departmental expenditures excluding GF transfers to other funds.

Cash funding to limit borrowing.

• Debt as Percentage of Assessed Value - 4% or less

Indicator of the City’s ability to repay debt with property taxes.

Ability to meet debt obligations during economic downturn.

• Debt as Percentage of General Gov’t Expenditures - 10% or less

Ability to repay debt without impacting to City services.

Smaller percentage = Less burden on the operating budget.

• Unassigned General Fund Balance

Indicator of financial strength and ability to cope with unexpected financial problems or emergencies.

12% of budgeted Governmental Fund expenditures less GF transfers.

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Update City Council Goals/Objectives

August

CIP Dev. & Adoption Sept./February

Budget Development Nov. - March

Budget Adoption

Rating Agency Visits

Issue Bonds

May

June/July

July/August

Budget Calendar

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Capital Improvements Plan

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Evaluate • Debt Capacity • Capital Pay-Go

Review project requests • Revenue Sources • Expenditures • Operating Impact

Assess Impact • Bond Capacity • Capital Pay-Go • Debt to AV and

General Gov’t Exp. • Operating Costs

Make Adjustments to Address: • Financial Policies • Affordability • Need/Demand

Present and Adopt CIP • CIP Subcommittee • Planning Commission • City Council

Financial Policies - Debt to Assessed Value - Debt to General Gov’t Exp. - Capital Pay-Go

Previous 5 Year 6-10 Year 10 Year

Funding Subtotal Subtotal Total

Public Utilities Revenue Bonds 5,335,000 11,050,000 8,800,000 4,300,000 6,800,000 36,285,000 98,900,000 135,185,000

Transfer from Public Utilities Fund 7,500,000 6,275,000 5,195,000 5,700,000 5,405,000 30,075,000 25,385,000 55,460,000

PUBLIC UTILITIES FUND 12,835,000 17,325,000 13,995,000 10,000,000 12,205,000 66,360,000 124,285,000 190,645,000

General Obligation Bonds - - - 2,175,000 - 2,175,000 12,325,000 14,500,000

FLEET FUND - - - 2,175,000 - 2,175,000 12,325,000 14,500,000

State Transportation Funds - - 200,000 400,000 400,000 1,000,000 1,000,000 2,000,000

State/Federal Grant Funds 750,000 - - - - 750,000 - 750,000

Transfer from Stormwater Fund 1,020,000 400,000 600,000 800,000 1,020,000 3,840,000 3,875,000 7,715,000

Transfer from Cemetery Fund 250,000 - - - - 250,000 - 250,000

General Obligation Bonds - - - - - - - -

STORMWATER FUND 2,020,000 400,000 800,000 1,200,000 1,420,000 5,840,000 4,875,000 10,715,000

RT. 17 Taxing District Fund 1,000,000 - - - - 1,000,000 - 1,000,000

RT 17 TAXING DISTRICT 1,000,000 - - - - 1,000,000 - 1,000,000

State Transportation Funds 5,000,000 5,000,000 5,000,000 6,000,000 6,000,000 27,000,000 53,000,000 80,000,000

State/Federal Grant Funds 23,005,314 11,170,000 8,214,000 623,000 3,456,000 46,468,314 42,250,000 88,718,314

Cash Proffers - - - - - - 1,137,365 1,137,365

Transfer from Rt. 17 Taxing District Fund 200,000 - - - - 200,000 - 200,000

Transfer from General Fund 4,552,475 4,749,810 4,521,384 4,886,609 4,854,965 23,565,243 30,934,870 54,500,113

General Obligation Bonds 18,226,886 16,914,324 24,040,674 24,850,848 28,941,241 112,973,973 343,151,919 456,125,892

GENERAL GOV'T. FUND 50,984,675 37,834,134 41,776,058 36,360,457 43,252,206 210,207,530 470,474,154 680,681,684

TOTAL ALL FUNDS: 66,839,675 55,559,134 56,571,058 49,735,457 56,877,206 285,582,530 611,959,154 897,541,684

GO Debt Capacity per Financial Advisor: 30,000,000 30,000,000 30,000,000 30,000,000 30,000,000

GO Debt Capacity (Shortfall): 11,773,114 13,085,676 5,959,326 5,149,152 1,058,759

FUNDING SOURCES

2018-2019 2019-2020 2020-2021 2021-2022 2022-2023

Capital Improvements Plan

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UTILITY FUND - OPERATIONS: - - - - -

ANTICIPATED DEBT SERVICE: - 266,750 552,500 440,000 215,000

UTILITY FUND - CAPITAL CASH: 4,200,000 (1,225,000) (1,080,000) 505,000 (295,000)

PUBLIC UTILITIES FUND 4,200,000 (958,250) (527,500) 945,000 (80,000)

STORMWATER FUND: - - - - -

GENERAL FUND - OPERATIONS: - 30,000 5,000 350,000 4,521,612

ANTICIPATED DEBT SERVICE: - 911,344 845,716 1,202,034 1,242,542

GENERAL FUND - CAPITAL CASH: 2,467,338 197,335 (228,426) 365,225 (31,644)

GENERAL GOV'T. FUND 2,467,338 1,138,679 622,290 1,917,259 5,732,511

General Fund Real Estate Tax Rate Impact: 2.750 1.269 0.694 2.137 6.389

2018-2019 2019-2020 2020-2021 2021-2022 2022-2023Annual Operating Impact

Capital Improvements Plan

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Operating & Capital Budget Development

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Prepare Draft Budget

Run Policy Calculations • Capital Pay-Go • Debt to AV • Debt to General Gov’t • Fund Balance

Make Adjustments to Draft Budget

Present Budget Public Meetings Budget Adoption

Evaluate Results

Plan for next Fiscal Year

FY 19 Budget Highlights

Compliance with Financial Policies

Policy

Requirement

FY 18

Budget

FY 19

Projected

Capital Pay Go 3.0% 3.1% 3.0%

Debt as Percentage of Assessed Value 4.0% 2.1% 2.2%

Debt as Percentage of General Gov't Exp. 10.0% 8.8% 8.3%

Unassigned Fund Balance 12.0% 16.1% 17.0%

Policy Goal 12% $42.5M FY 18 Proj. Fund Balance $60.1M FY 19 Gen. Govt. Exp. $354.3M

17.0%

12%

Results

• Complying with Financial Policies

• GF Fund Balance increased $11.4M to $60M

• Cash Position at All-Time High

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Results

Continued to make strategic capital investments

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Results

• Increased General Fund cash for capital projects

• AAA Bond Rating

– Standard & Poor’s (2014)

– Fitch (2015)

• $28.7M in debt savings from refundings

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• Enhanced awareness of elected officials

• Improved long-range perspective of financial decisions

• Provides credibility and confidence which can be touted to citizens

• Unintended Consequences – Heightened focus on minor changes

– Can become overcautious

– Debate over how much is too much fund balance

– Increased appeal to tap into reserves for recurring expenditures

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Results

Conclusion

• Adherence to Financial Policies is CRITICAL to the long-term financial health

• Incorporating financial policies into the Budget development process is a good financial management practice

• Measuring Results and Reporting Compliance enhance accountability to Governing Body, Citizens, and Bond Rating Agencies

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