HomeMy WebLinkAboutRes 2012-020
RESOLUTION 2012 -02
A RESOLUTION OF THE MAYOR AND COUNCIL OF THE TOWN OF
FOUNTAIN HILLS, ARIZONA, REVISING TOWN FUND BALANCE
REPORTING POLICIES TO COMPLY WITH GOVERNMENT
ACCOUNTING STANDARDS BOARD (GASB) NO. 54, FUND BALANCE
REPORTING AND GOVERNMENTAL FUND TYPE DEFINITIONS AND
APPOINTMENT.
WHEREAS, the Governmental Accounting Standards Board ( "GASB ") has adopted
Statement 54 ( "GASB 54 "), a new standard for governmental fund balance reporting and
governmental fund type definitions that became effective in governmental fiscal years starting
after June 15, 2010, and
WHEREAS, currently, Town fund balance is divided into three basic classifications for
governmental accounting and tracking purposes; reserved, designated unreserved and
undesignated unreserved. Reserved and designated unreserved fund balance is legally restricted
for a future specific use and is not available for general appropriation. Undesignated and
unreserved fund balance is not restricted and, therefore, it is available for those uses that the
Council deems necessary; and
WHEREAS, the Mayor and Town Council of the Town of Fountain Hills (the "Town
Council ") desires to create five new classifications of governmental fund balances
( Nonspendable Fund Balance; Restricted Fund Balance; Committed Fund Balance; Assigned
Fund Balance; and Unassigned Fund Balance) as required by GASB 54. The live new fund
balance types are more fully defined in the Town of Fountain Hills Financial Policies, Amended
and Restated June 7, 2012 (the "Amended Financial Policies ") attached hereto as Exhibit A and
incorporated herein by reference; and
WHEREAS, the overall principal and goal of GASB 54 is to report governmental fund
balances based on a hierarchy that shows from the highest to the lowest, the level or form of
constraints on fund balance, and accordingly, the extent to which governments are bound to
honor them; and
WHEREAS, due to the GASB 54 requirement that commitments of fund balances
should occur before year end, governments will not be able to report anything other than
nonspendable, restricted, and assigned governmental fund balances, unless the Town Council
takes actions before year -end to establish committed fund balances, including stabilization
arrangements; and
WHEREAS, decisions as to which person(s) should have direct or delegated authority to
assign fund balanced should be decided by fiscal year end; and
WHEREAS, the Town Council hereby elects to (i) implement GASB 54 requirements,
and to apply such requirements to its financial statements beginning with the prior (July 1, 2011)
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fiscal year; and (ii) adopt financial policies consistent with GASB 54 in the current (July 1,
2012) fiscal year and thereafter.
NOW, THEREFORE, BE IT RESOLVED BY THE MAYOR AND COUNCIL OF
THE TOWN OF FOUNTAIN HILLS as follows:
SECTION 1. The recitals above are hereby incorporated as if fully set forth herein.
SECTION 2. Funds contained in the General Fund shall be classified as one or more of
the following: Non - spendable, Restricted, Committed, Assigned or Unassigned Fund Balance.
SECTION 3. Special Revenue funds shall be classified as either Restricted or
Committed Fund Balance.
SECTION 4. Rainy Day funds shall be classified as Committed Fund Balance.
SECTION 5. Debt Service, Capital Projects, and Permanent Funds shall be classified as
one or more of the following: Restricted, Committed or Assigned Fund Balances.
SECTION 6. General Fund residual balances not elsewhere classified hereby designated
as Unassigned Fund Balance.
SECTION 7. The order of use of Restricted and Unrestricted Funds will be as follows:
Restricted Fund Balance will be spent before Unrestricted Fund Balance when expenditures are
incurred for purposes for which both restricted and unrestricted (committed, assigned and
unassigned) amounts are available.
SECTION 8. The order of use of Unrestricted Fund Balance shall be committed,
assigned then unassigned amounts, in that order, which will be spent when expenditures are
incurred for purposes for which in any of those Unrestricted Fund Balance classifications could
be used.
SECTION 9. The Finance Director is hereby delegated the authority necessary to assign
fund balances and nonspendable items, to fiscal years beginning on or after July 1, 2011.
SECTION 10. The document known as Town of Fountain Hills Financial Policies,
Amended and Restated June 7, 2012, is hereby adopted in the form attached hereto in Exhibit A
and incorporated herein by reference.
SECTION 11. The Mayor, the Town Manager, the Town Clerk and the Town Attorney
are hereby authorized and directed to take all steps necessary to cant' out the purpose and intent
of this Resolution.
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PASSED AND ADOPTED BY the Mayor and Council of the Town of Fountain Hills,
Arizona, June 7, 2012.
FOR THE TOWN OF FOUNTAIN HILLS:
Linda M. Kavanagh, i'vlayor
REVIEWED BY:
4.,-zaLo - 2��
Kenneth W. Buchanan, Town Manager
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ATTESTED TO:
C• 9 W#r,
APPROVED AS TO FORM:
Andrew J. N Guire, Town Attorney
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EXHIBIT A
TO
RESOLUTION 2012 -02
[Amended Financial Policies]
See following pages.
TOWN OF FOUNTAIN HILLS FINANCIAL POLICIES
Amended and Restated June 7, 2012
I. INTRODUCTION
The Mayor and Town Council (the "Town Council ") of the Town of Fountain Hills (the
"Town ") understands that principles of sound financial management establish the framework for
overall fiscal planning and management. The principles set forth guidelines for both current
activities and long range planning. Following these principles will enhance the Town's financial
health as well as its image and credibility with its citizens, the public in general, bond rating
agencies and investors. The policies will be reviewed annually to assure the highest standards of
fiscal management. Policy changes will be needed as the Town continues to grow and becomes
more diverse and complex in the services it provides, as well as the organization under which it
operates, to provide these services to its citizens. The Town Manager and staff have the primary
role of reviewing and providing guidance in the financial area to the Town Council.
II. OVERALL GOALS
The overall financial goals underlying these principles are:
Fiscal Conservatism. To ensure that the Town is, at all times, in a solid financial
condition, defined as:
A. Cash solvency — the ability to pay bills.
B. Budgetary solvency — the ability to balance the budget.
C. Long run solvency — the ability to pay future costs.
D. Service level solvency — the ability to provide needed and desired services.
E. Adhering to the highest accounting and management practices as set by
the Government Finance Officers' Association standards for financial
reporting and budgeting, by the Governmental Accounting Standards
Board (GASB) and other professional standards.
2. To maintain an Aa3 or better bond rating in the financial community to assure the
Town taxpayers that the Town government is well managed and financially
sound.
3. To have the ability to withstand local and regional economic fluctuations, to
adjust to changes in the service requirements of our community, and to respond to
changes in Federal and State priorities and funding as they affect the Town's
residents.
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4. To deliver quality services in an affordable, efficient and cost- effective basis
providing full value for each tax dollar.
III. FUND BALANCE
Fund balance is defined as the cumulative difference of all revenues and expenditures, also
considered the difference between fund assets and fund liabilities, known as fund equity. The
purpose of this policy is to establish a key element of the financial stability of the Town by
setting guidelines for fund balance. It is essential that the Town maintain adequate levels of fund
balance to mitigate financial risk that can occur from unforeseen revenue fluctuations,
unanticipated expenditures and similar circumstances. The fund balance also provides cash flow
liquidity for the Town's general operations. Fund balance is an important indicator of the
Town's financial position and adequate reserves must be maintained to allow the Town to
continue providing services to the community during periods of economic downturns and/or
unexpected emergencies or requirements.
The level of Fund Balance is related to the degree of uncertainty that the Town faces. A prudent
level of financial resources is necessary to protect against the need to reduce service levels or
raise taxes and fees due to temporary revenue shortfalls or unpredicted one -time expenditures.
With the Town dependency upon State Shared Income and State Sales Tax revenues for one
third of the General Fund budget, there is increased opportunity for fluctuation. Additionally, a
significant portion of Town revenue is received from sales taxes — both state shared and local -
which are sensitive to fluctuations in the economy. Therefore, the level of reserves needs to be
sufficient to ensure stability in on -going government operations during a slowdown in the
economy or legislative changes to the revenue sharing formula.
Fund balance is one of the most widely used elements of state and local government financial
statements by (1) municipal bond analysts through credit reviews and ratings, (2) taxpayer
associations, (3) research organizations and oversight bodies, (4) state, county and local
legislators and officials, (5) financial statement users and (6) reporters.
Other objectives that influence the size of the fund balance are:
1. Credit reviews performed by municipal bond analysts.
2. Preserving or improving the Aa3 bond rating.
3. Maintaining a positive trend to historical fund balances.
4. Maintaining a rating equal to or better than surrounding communities.
Maintaining ratios consistent with desired outcomes of ten key ratios of financial
condition (Government Finance Review, Dec. 1993).
The Governmental Accounting Standards Board ( "GASB ") has found that usefulness and value
of fund balance information provided is significantly reduced by misunderstandings regarding
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the message that it conveys, and the inconsistent treatment and financial reporting practices of
governments. GASB recently issued a pronouncement, GASB Statement 54 ( "GASB 54 "), that
applies to all financial reports of all state and local governmental entities; GASB 54 intended to
improve financial reporting by providing fund balance categories and classifications that will be
more easily understood.
Definitions:
Fund Equity – a fund's equity is generally the difference between its assets and its liabilities
Fund Balance – an accounting distinction is made between portions of fund equity that are
spendable and nonspendable. These portions are broken into five categories:
Nonsnendable fund balance— Includes amounts either not in spendable form or legally
or contractually required to be maintained intact, such as the principal balance of an
endowment or permanent fund. This would include inventory, prepaids, and non - current
receivables such as long -term loan and notes receivable and property held for resale
(unless the proceeds are restricted, committed or assigned).
• Restricted fund balance— Reflects the same definition as restricted net assets on the
government -wide Statement of Net Assets; constraints placed on the use of amounts are
either (1) externally imposed by creditors (such as through debt covenants), grantors,
contributors, or laws or regulations of other governments or (2) imposed by law through
constitutional provisions or enabling legislation.
• Committed fund balance— Includes amounts that are committed for specific purposes by
formal action of the Town Council. Amounts classified as "committed" are not subject to
legal enforceability like restricted fund balance; however, those committed amounts
cannot be used for any other purpose unless the Town Council removes or changes the
limitation by taking the same form of action it employed to previously impose the
limitation. The action to commit fund balances must occur prior to year end; however,
actual amounts can be determined in the subsequent period.
Assigned fund balance— Amounts that are intended by the Town to be used for specific
purposes, but are neither restricted nor committed, should be reported as assigned fund
balance. Intent should be expressed by the Town Council itself or a subordinate high -
level body or official possessing the authority to assign amounts to be used for specific
purposes in accordance with policy established by the Town Council. This assignment
would include any activity reported in a fund other than the General Fund that is not
otherwise restricted more narrowly by the above definitions. The Town is not allowed to
assign balances that result in a residual deficit.
• Unassigned fund balance— Includes any remaining amounts after applying the above
definitions (amounts not classified as nonspendable, restricted, committed or assigned).
Planned spending in the subsequent year's budget would be included in the unassigned
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Fund Balance category. The General Fund is the only fund that will report a positive
unassigned balance.
General Fund
The Town fund balance may consist of up to five (5) components, as described above. In order
to satisfy the objective of maintaining a bond rating equal to or better than surrounding peer
communities, a combined General Fund operating fund balance of at least 30% of revenues is
recommended.
Committed Fund Balance (previously Reserved Fund Balance): The Town will maintain a
committed fund balance in the General Fund of 20% of the average actual General Fund
revenues for the preceding five fiscal years, indicating stable fiscal policies. The maintenance of
this fiscal balance is a particularly important factor considered by credit rating agencies in their
evaluation of the credit worthiness of the Town. It is of primary importance that the Town's
credit rating be protected.
Rainy Day Fund to be Maintained. As a component of the Committed fund
balance the Town will maintain a Rainy Day Fund, separate and apart from the
Unassigned General Fund, which shall be designated for use in the event of an
unanticipated expenditure or loss of revenue. The Rainy Day Fund balance at the
end of any fiscal year will be equal to no less than 30 days of operating
expenditures for the upcoming fiscal year. This contingency will provide for the
temporary financing of an unforeseen nature for that year. Expenditures for these
emergency or unforeseen appropriations can only be undertaken with Town
Manager approval and only if funds are not available in the department requesting
the contingency funding.
2. Guidelines for Rainy Day Fund. In order to achieve the objectives of this policy,
and to maintain sufficient working capital and a comfortable margin of safety to
address emergencies and unexpected declines in revenue without borrowing, the
following guidelines shall be adhered to by the Town Manager, Town staff and
Town Council:
A. Deposit Rules.
(1) The initial Rainy Day Fund deposit shall be made by transferring
the total amount of the "undesignated unreserved fund balance"
from the General Fund to the Rainy Day Fund.
(2) At the end of each fiscal year, the Town Council shall transfer 5%
of any surplus revenues (before transfers to the Capital Projects
Fund) to the Rainy Day Fund. Deposits shall be made as set forth
herein until the Rainy Day Fund balance is equal to 10% of the
average of the General Fund revenues for the immediately
preceding five years.
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B. Use Rules. Rainy Day Funds may only be expended for any one of the
following purposes or under the following circumstances:
(1) To replace the loss of more than 25% of the Town's local share of
State Shared Revenues received pursuant to ARi7_. REv. STAT. § 43 -206.
(2) For any event that threatens the health, safety or welfare of the
Town's citizens.
(3) For any event that threatens the fiscal stability of the Town.
(4) To address any matter declared as an emergency by the Governor
or the Mayor.
C. Withdrawal Rules. All withdrawals from the Rainy Day Fund shall be
subject to the following rules:
(1) Any appropriation shall require the approval by at least 2/3 of the
entire Town Council.
(2) The maximum amount of Rainy Day withdrawals in any fiscal year
shall not exceed one -half of the total balance in the fund.
D. Replenishment Rules. Any amounts withdrawn from the Rainy Day Fund
shall be replenished as follows (and such repayment shall be in addition to
the annual deposits set forth above):
(1) All amounts shall be repaid in not more than five years, in equal
annual installments of not less than 1% of the previous fiscal year
General Fund balance.
(2) Repayments shall be appropriated as part of the annual budget
adoption.
Assigned Fund Balance (previously Designated Unreserved Fund Balance). The Town will
maintain an assigned fund balance in the General Fund of a minimum 10% of the average actual
General Fund revenues for the preceding five fiscal years. These designated unreserved fund
balances will be assigned for (1) "pay -as- you -go" capital replacement expenditures, (2)
equipment replacement, (3) capital projects, (4) prepaying existing Town debt or (5) any other
expenditure that is non - recurring in nature. The 10% is the minimum and is based on the
Property and Equipment Replacement Schedule which may be increased to accelerate
accumulation of funds for a large capital expenditure. To the extent these balances are
expended, additional funds necessary to restore this additional 10% amount will be provided in
at least approximately equal contributions during the five fiscal years following the fiscal year in
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Capital Project Funds
A capital improvement fund has been established as a committed fund to allow the Town to
accumulate monies for (1) purchase of land or buildings, (2) improvements to Town -owned
properties, (3) grant matches associated with capital improvements, (4) public safety projects and
equipment purchases, (5) economic development projects and (6) such other capital projects as
determined by the Town Council. The capital improvement fund will be funded by: (A) sales of
real and personal property belonging to the Town; (B) general fund transfer of any excess
revenues collected over budgeted and unexpended appropriations not needed to meet fund
balance requirements or re- appropriation; and (C) interest earnings on the balance of the fund
invested per the Town's investment policy. Accounted for separately, but considered part of the
Capital Project Fund, are accumulated development fees collected pursuant to ARtz. REV. SPAT.
§ 9- 463.05 that are assessed on new construction for the purpose of funding growth. These funds
are restricted to growth- related capital expenditures as designated in the Town's adopted
Infrastructure Improvements Plan. The Fund Balance will be established each fiscal year during
the budget process depending on planned expenditures but cannot exceed accumulated revenues.
The Town shall first be entitled to recoup the cost of any capital improvements, infrastructure,
marketing or sales - related costs associated with the disposition of property before crediting the
capital improvement fund (for funds other than development fees). The Town Council may
approve the uses of the capital improvement fund as a part of its annual budget or by motion and
affirmative vote at a time the expenditures are approved.
IV. FINANCIAL PLANNING
Fiscal planning refers to the process of identifying resources and allocating those resources
among competing purposes. The primary vehicle for this planning is the preparation, monitoring
and analyses of the Town's budget. It is increasingly important to monitor the performance of
the programs competing to receive funding.
The Town Manager shall submit to the Town Council a proposed annual budget,
which shall be submitted to the Town Council and the public for review in
accordance with ARIZ. REV. STAT. § 42- 17001, et seq. The Town will budget
revenues and expenditures on the basis of a fiscal year which begins July 1 and
ends on the following June 30. The Town Council will adopt the budget no later
than June 30, and the Town Manager shall execute the Town Council policies as
set forth in the finally adopted budget.
2. The Town Manager or authorized designee will prepare a budget in accordance
with the guidelines established by the Government Finance Officers Association
in its Distinguished Budget Award Program. The proposed budget will contain
the following:
A. Revenue estimates by major category, by major fund.
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B. Expenditure estimates by department levels and major expenditure
category, by major fund.
C. Estimated fund balance by major fund.
D. Debt service by issue detailing principal and interest amounts by fund.
E. Proposed personnel staffing levels.
F. A detailed schedule of capital projects, including a capital improvement
program.
G. Any additional information, data, or analysis requested of management by
the Town Council.
3. The operating budget will be based on the principle that current operating
expenditures, including debt service, will be funded with current revenues
creating a balanced budget. The Town will not balance the current budget at the
expense of meeting future years' expenditures; for example, accruing future
years' revenues or rolling over short-term debt to avoid planned debt retirement.
4. Ongoing operating costs should be supported by ongoing, stable revenue sources.
This policy protects the Town from fluctuating service levels, and avoids crises
when one -time revenues are reduced or removed. Revenues from growth or
development should be targeted to costs related to development, or invested in
improvements that will benefit future residents or make future service provision
efficient.
5. The Town Manager will provide an estimate of the Town's revenues annually for
each fiscal year. The estimates of special (grant, excise tax, etc.) revenues and
interfund transfers will also be provided by the Town Manager.
b. The budget will fully appropriate the resources needed for authorized regular
staffing. At no time shall the number of regular full -time employees on the
payroll exceed the total number of full -time positions authorized by the Town
Council. All personnel actions shall be in conformance with applicable Federal
and State law and all Town ordinances and policies.
7. The Town Manager shall provide, annually, a budget preparation schedule
outlining the preparation timelines for the proposed budget. Budget packages for
the preparation of the budget, including forms and instructions, shall be
distributed to Town departments in a timely manner for the Department's
completion. Department Directors shall prepare and return their budget proposals
to the Administration Department, as required in the budget preparation schedule.
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8. Performance measurement indicators will be integrated into the budget process as
appropriate.
9. Alternatives for improving the efficiency and effectiveness of the Town's
programs and the productivity of its employees will be considered during the
budget process. Duplication of services and inefficiency in service delivery
should be eliminated wherever they are identified.
10. Department Directors are required to monitor revenues and control expenditures
to prevent exceeding their total departmental expenditure budget. It is the
responsibility of these Department Directors to immediately notify the Town
Manager of any exceptional circumstances that could result in a departmental
expenditure budget to be exceeded.
11. A quarterly report on the status of the General Fund budget and trends will be
prepared within 60 days of the end of each quarter by the Town Manager or
authorized designee. In addition, the quarterly report shall include revenue and
expenditure projections through the end of the fiscal year.
12. If a deficit is projected during any fiscal year, the Town will take steps to reduce
expenditures, increase revenues or, if a deficit is caused by an emergency,
consider using the Rainy Day Fund, to the extent necessary to ensure a balanced
budget at the close of the fiscal year. The Town Manager may institute a
cessation during the fiscal year on hirings, promotions, transfers, and capital
equipment purchases. Such action will not be taken arbitrarily and without
knowledge and support of the Town Council.
V. EXPENDITURE CONTROL
The Town Manager shall ensure compliance with the legally adopted budget. In addition,
purchases and expenditures must comply with all applicable legal requirements.
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Expenditures will be controlled by an annual budget at the departmental level.
The Town Council shall adopt appropriations through the budget process.
Written procedures will be maintained for administrative approval and processing
of certain budget transfers within funds.
2. The Town will maintain a purchasing system that provides needed materials in a
timely manner to avoid interruptions in the delivery of services. All purchases
shall be made in accordance with the Town's purchasing policies, guidelines and
procedures and applicable state and federal laws. The Town will endeavor to
obtain supplies, equipment and services as economically as possible.
3. Expenditures will be controlled through appropriate internal controls and
procedures in processing invoices for payment.
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4. The State of Arizona sets a limit on the expenditures of local jurisdictions. The
Town will comply with these expenditure limitations and will submit an audited
expenditure limitation report, audited financial statements and audited
reconciliation report as defined by the Uniform Expenditure Reporting System
(ARiz. REV. STAT. § 41- 1279.07) to the State Auditor General each year.
5. Assets will be capitalized at $10,000 and will be recorded in the Town of
Fountain Hills Summary of General Fixed Assets.
VI. REVENUES AND COLLECTIONS
All government employees are considered stewards of public funds. In order to provide funding
for service delivery, the Town must have reliable revenue sources. These diverse revenues must
be collected equitably, timely and efficiently.
1. The Town's goal is a General Fund revenue base that is equally balanced between
sales taxes, state shared revenues, property tax, service fees and other revenue
sources.
2. The Town will strive for a diversified and stable revenue base to shelter it from
economic changes or short-term fluctuations and in any one revenue source by
doing the following:
A. Establishing new charges and fees as needed and as permitted by law at
reasonable levels.
B. Pursuing legislative change, when necessary, to permit changes or
establishment of user charges and fees.
C. Aggressively collecting all revenues, late penalties, outstanding taxes
owed and related interest as authorized by law.
3. The Town Manager or authorized designee will monitor all taxes to ensure they
are equitably administered and collections are timely and accurate. Fees and
charges should be based on benefits and/or privileges granted by the Town, or
based on costs of a particular service.
4. The Town Manager or authorized designee should pursue intergovernmental aid
for those programs and activities that address a recognized need and are consistent
with the Town's long -range objectives. Any decision to pursue
intergovernmental aid should include the consideration of the following:
A. Present and future funding requirements.
B. Cost of administering the funds.
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C. Costs associated with special conditions or regulations attached to the
grant award.
5. The Town will attempt to recover all allowable costs (both direct and indirect)
associated with the administration and implementation of programs funded
through intergovernmental aid. In the case of the Fountain Hills Unified School
District, the Town may determine to recover less than full cost of services
provided. In the case of State and federally mandated programs, the Town will
attempt to obtain full funding for the service from the governmental entity
requiring the service be provided. Allowable costs will be determined based upon
a "Cost Allocation Study" prepared periodically.
6. Local sales tax revenues are derived from several sources with a significant
portion from construction related activity. To ensure that the revenues from
growth or development are targeted to costs related to development, or invested in
improvements that will benefit future residents or make future service provision
efficient, the Town will designate 85% of those one -time revenues to the Capital
Projects Fund. At the end of each fiscal year these revenues will be transferred
from the General Fund to the Capital Projects Fund for future appropriation.
VII. USER FEE COST RECOVERY
User fees and charges are payments for voluntarily purchased, publicly provided services that
benefit specific individuals. The Town relies on user fees and charges to supplement other
revenue sources in order to provide public services.
1. The Town may establish user fees and charges for certain services provided to
users receiving a specific benefit.
2. User fees and charges will be established to recover as much as possible the direct
and indirect costs of the program or service, unless the percentage of full cost
recovery has been mandated by specific action of the Town Council. It is
recognized that occasionally competing policy objectives may result in reduced
user fees and charges that recover a smaller portion of service costs.
3. Periodically, the Town will recalculate the full costs of activities supported by
user fees to identify the impact of inflation and other attendant costs.
VIII. DEBT POLICY
The purpose of this debt policy is to provide for the preservation and enhancement of the Town's
bond ratings, the maintenance of adequate debt service reserves, compliance with debt
instrument covenants and provisions and required disclosures to investors, underwriters and
rating agencies. The Town's overall debt management policy is to ensure that financial
resources are adequate in any general economic situation to not preclude the Town's ability to
pay its debt when due.
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These policies are meant to supplement the legal framework of public debt laws provided by the
Arizona Constitution, State Statutes, Federal tax laws and the Town's current bond resolutions
and covenants. The Arizona Constitution limits a city or town's bonded debt capacity
(outstanding principal) to certain percentages of the Town's secondary assessed valuation by the
type of project to be constructed. There is a limit of 20% of secondary assessed valuation for
projects involving water, sewer, artificial lighting, parks, open space, public safety,
transportation, streets and recreational facility improvements. There is a limit of 6% of
secondary assessed valuation for any other general- purpose project.
General.
A. The Town will (1) use current revenues to pay for short-term capital
projects, repair and maintenance items and (2) reserve long -term debt for
capital improvements with useful lives of ten years or more. The Town
will not use long -tern debt to fund current governmental operations and
will manage its cash flow in a fashion that will prevent any borrowing to
meet working capital needs. However, exclusive reliance upon pay -as-
you-go funds for capital improvements requires existing residents to pay
for improvements that will benefit new residents who relocate to the area
after the expenditure is made. Financing capital projects with debt
provides for an "intergenerational equity", as the actual users of the capital
asset pay for its cost over time, rather than one group of users paying in
advance for the costs of the asset. Where there is a benefit to all future
residents, debt financing should be given consideration.
B. To increase its reliance on current revenue to finance its capital
improvements, and promote a "pay -as- you -go" philosophy, the Town will
appropriate each year a percentage of current revenues to maintain a
minimum 10% of average actual General Fund revenues for the preceding
five fiscal years in the Assigned Fund Balance.
2. Capital Improvement Plan.
A. As part of the budget process each year the Town Manager or authorized
designee will prepare a capital spending plan that provides a detailed
summary of specific capital projects for the five fiscal years subsequent to
the fiscal year presented. The plan will include the name of the project,
project schedule, capital cost by fiscal year and a recommended specific
funding source. The five year capital improvement plan will be developed
within the constraints of the Town's ability to finance the plan.
B. The Town Manager and Department Directors will develop formal
ranking criteria that will be used in the evaluation of all capital projects.
The program ranking criteria will give greatest weight to those projects
which protect the health and safety of its citizens. Pay -as- you -go project
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financing shall be given the highest priority. Capital improvements that
must rely upon debt financing shall be accorded a lower priority and
projects with a useful life of less than ten years shall not be eligible for
inclusion in bond issues.
C. Lease purchase financing shall only be undertaken when the project is
considered essential to the efficient operation of the Town or to remove
expenditures that would exceed the State imposed expenditure limitation.
The Town Manager or authorized designee shall be responsible for
ensuring that pay -as- you -go expenditures do not cause the State imposed
expenditure limitation to be exceeded in any fiscal year.
D. All capital project requests will be accompanied by a description of the
sources of funding to cover project costs. Where borrowing is
recommended, a dedicated source of funds to cover debt service
requirements must be identified. All capital project requests will be
required to identify any impact the project may have on future operating
costs of the Town. The Town will seek grants to finance capital
improvements and will favor those projects which are likely to receive
grant money.
E. All capital project appropriations and amendments to the capital
improvement plan must be approved by the Town Council.
F. The capital plan will include all equipment and facilities with a useful life
of greater than ten years and a cost greater than $50,000. Debt financing
shall not exceed the useful life of the infrastructure improvement or asset.
G. Seven steps in preparation of Capital Improvement Program:
(1) Establish Capital Improvement policies.
(a) Time period the CIP will cover.
(b) Facilities /equipment that will be included in the CIP.
(c) How acquisition of multiple items (e.g. computers) will be
treated.
(d) Identification of projects that are expected to be
undertaken, but fall outside the time horizon of the plan.
(2) Adopt Standards to rank project requests.
(a) Projects that address a public health or safety concern are
given top priority.
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(b)
Projects mandated by a court of competent jurisdiction or a
government with authority over the Town are equal with
public health or safety.
(c)
Major maintenance (preservation of assets).
(d)
Replacement of obsolete equipment (improving efficiency).
(e)
Expansion to meet demand caused by growth.
(f)
Coordination of projects to achieve cost savings.
(g)
Availability of cash to finance improvements from current
revenues.
(h)
Acquisition of open space.
(3) Perform and maintain a capital inventory and identify useful life.
(4) Identify
projects.
(a)
Status review of previously approved projects.
(b)
Identification of new projects.
(c)
Assess capital project alternatives.
(d)
Complete project request forms.
(5) Assess funding sources.
(a)
Available grants.
(b)
Development fees shall be utilized to fund capital projects
before pay -as- you -go and bond issuance financing.
(c) Developer contributions.
(d) Public /Private partnerships.
(e) Issuance of Securities.
(0 Capital Leases.
(6) Approve the CIP and Budget.
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(a) Legislative review.
(b) Public hearing.
(c) Adoption of the CIP and capital budget.
The Town of Fountain Hills capital improvement program ranking criteria will give greatest
weight to those projects which protect the health and safety of its citizens. Pay -as- you -go project
financing shall be given the highest priority. Capital improvements that must rely upon debt
financing shall be accorded a lower priority. All capital project requests will be accompanied by
a description of the sources of funding to cover project costs. Where borrowing is
recommended, the source of funds to cover debt service requirements must be identified. All
capital project requests will be required to identify any impact the project may have on future
operating costs of the Town.
Department Directors will submit a detailed description of the useful life of capital projects
submitted in conjunction with the preparation of the Town's CIP. Projects with a useful life of
less than ten years shall not be eligible for inclusion in bond issues except in extraordinary
circumstances. The Town Manager shall incorporate an estimate of the useful life of proposal
capital improvements in developing an amortization schedule for each bond issue. If a short-
lived asset or project (less than ten years) is included in a bond issue then the bond amortization
schedule shall be adjusted to reflect the asset's rapid depreciation. At no time shall the
amortization exceed the life of the asset.
3. Financing Alternatives.
A. Financing alternatives include, but are not limited to:
(1) Grants.
(2) Developer Contributions.
(3) General Obligation Bond — requires voter approval, supported by
an ad valorem (property) tax.
(4) Revenue Bonds — repaid with dedicated revenue stream (HURF,
revenue generated by project).
(5) Municipal Property Corporation Bonds — repaid with a dedicated
revenue source.
(6) CFD or Special District Bonds — supported by an ad valorem
property tax.
(7) Capital Leases — repaid within operating budget.
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(8) Commercial Paper (CP) or Bond Anticipation Notes (BAN) with
terms less than two years.
B. Town Debt Service costs (GO, Revenue Bonds, MPC, Leases) shall not
exceed 20% of the Town's operating revenue in order to control fixed
costs and ensure expenditure flexibility. Improvement District (113),
Community Facility District (CFD) and Special District debt service is not
included in this calculation because it is paid by district property owners
and is not an obligation of the general citizenry. Separate criteria have
been established and included within the Town's CFD policy.
C. In accordance with requirements of the State of Arizona Constitution, total
bonded indebtedness shall not exceed 20% of the Town's total secondary
assessed valuation of taxable property in the Town for water, sewer,
artificial lighting, parks, open space, public safety, transportation, streets
and recreational facility improvements and 6% of the total secondary
assessed valuation of taxable property in the Town for all general
purposes.
D. The Town shall comply with all U.S. Internal Revenue Service arbitrage
rebate requirements for bonded indebtedness.
E. Where applicable, the Town will structure General Obligation bond issues
to create level debt service payments over the life of the issue. The goal
will be to strive for a debt repayment schedule to be no more than 15
years; at no time will the debt exceed 25 years.
F. Refunding bonds will be measured against a standard of the net present
value debt service savings exceeding 3% of the principal amount of the
bonds being refunded, or if savings exceed $750,000, or for the purposes
of modifying restrictive covenants or to modify the existing debt structure
to the benefit of the Town. Refinancings undertaken for other reasons
should proceed only when the advantages have been clearly shown in a
cost/benefit analysis of the transaction.
G. The Town will seek to maintain and, if possible, improve the current bond
rating in order to minimize borrowing costs and preserve access to credit.
H. An analysis showing how a new issue combined with current debt impacts
the Town's debt capacity and conformance with Town debt policies will
accompany every future bond issue proposal. The debt capacity analysis
should reflect a positive trend and include:
(1) Percent of debt outstanding as a percent of the legal debt limit.
(2) Measures of the tax and revenue base.
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(3) Evaluation of trends relating to expenditures and fund balance.
(4) Debt service as a percentage of assessed valuation.
(5) Measures of debt burden on the community.
(6) Tax- exempt market factors affecting interest costs.
(7) Debt ratios.
Municipal Property Corporation and contractual debt, which is non -voter
approved, will be utilized only when a dedicated revenue source (e.g.
excise taxes) can be identified to pay debt service expenses. The project
to be financed will generate net positive revenues (i.e., the additional
revenues generated by the project will be greater than the debt service
requirements).
The Town's privilege /excise tax to debt service goal will be a ratio of at
least 3.5:1 to ensure the Town's ability to pay for long -term debt from this
elastic revenue source.
4. Issuance of Obligations.
A. The Town shall select the Underwriter and the Paying agent/registrar for
each debt issuance based on competitive bid. The underwriter must be a
firm domiciled in Arizona with an office in the Phoenix area and a record
of prior working relationships.
B. The request for proposals process will be designed to select the service
providers that offer the Town the best combination of expertise and price.
The Town is not required to select the firm offering the lowest price, but a
report must be prepared by the Town Manager providing justification to
the Town Council for a recommendation when other than the lowest
bidder is chosen. The review of all proposals submitted shall be the
responsibility of the Town Manager.
C. The Town of Fountain Hills will use competitive sales as the primary
means of selling new General Obligation or revenue bonds that are repaid
through ad valorem (property) taxes. Negotiated sales will be permitted
for all other debt issues when it is expected to result in a lower true
interest cost than would a competitive sale of that same date and structure
or there is evidence of volatile market conditions, complex security
features, or another overriding factor.
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D. The Town Manager or designee and Town Attorney will coordinate their
activities to ensure that all securities are issued in the most efficient and
cost - effective manner and in compliance with the governing statutes and
regulations. The Manager and the Town Attorney shall consult and jointly
select the bond counsel for a bond issue. The Town Attorney will review
all documents related to the issuance of securities by the jurisdiction.
E. The Town Manager or authorized designee will seek a rating on all new
issues which are being sold in the public market if economically feasible.
F. The Town will report, on an annual basis, all financial information and/or
notices of material events to the rating agencies and Electronic Municipal
Market Access (EMMA). The annual report will include but not be
limited to the Town's annual Comprehensive Annual Financial Report
(CAFR).
G. Any institution or individual investing monies as an agent for the Town
shall do so in a manner consistent and in compliance with the Town's
adopted Investment Policy.
H. The Town Manager or authorized designee will provide detailed draw
schedules for any project to be funded with borrowed monies. The Town
will invest the proceeds or direct a trustee to invest the proceeds of all
borrowings in a manner that will ensure the availability of funds as
described in the draw schedules.
1. The Town acknowledges the responsibilities of the underwriting
community and pledges to make all reasonable efforts to assist
underwriters in their efforts to comply with SEC Rule 15c2 -12 and MSRB
Rule G -36.
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