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TC Res. No. 2006-52 ADOPT A FUND BALANCE RESERVE POLICY FORTOWN OF AVON, COLORADO RESOLUTION NO. 06-52 SERIES OF 2006 A RESOLUTION TO ADOPT A FUND BALANCE RESERVE POLICY FOR THE TOWN OF AVON GENERAL FUND WHEREAS, a formalized fund balance policy is an indication of good fiscal management and exists as a positive disciple in long-term financial management; and WHEREAS, The Town of Avon recognizes the importance of maintaining an appropriated level of undesignated fund balance in order to mitigate current and future financial risks; and WHEREAS, the Town of Avon is highly depended on sales-tax revenues in a tourism-based economy. NOW, THEREFORE, BE IT HEREBY RESOLVED, that the Town Council of the Town of Avon, Colorado, adopts a FUND BALANCE POLICY, a copy of which is - -attached and marked as EXHIBIT A. ADOPTED this 28" day of November, 2006. T F AVON, COL O . 9D 4&~g C Ronald C. Wolfe, Mayor EXHIBIT A TOWN OF AVON FUND BALANCE POLICY November 28, 2006 Background. The term fund balance is used to describe the net assets of governmental funds calculated in accordance with generally accepted accounting principles (GAAP) and is intended to serve as a measure of the financial resources available in a governmental fund. It is essential that the Town maintain adequate levels of fund balance to mitigate current and future risks (e.g. revenue shortfalls and unanticipated expenditures). Fund balance levels are an important consideration in long-term financial planning and credit agencies carefully monitor levels of fund balance in a government's general fund to evaluate a government's continued creditworthiness. Because of the Town's dependence on sales tax revenue in a tourism-based economy a conservative approach to managing fund balances reserves is warranted. After evaluating the Town's operating characteristics and financial resources available in other funds, reliability and seasonality of revenue sources, reliance on individual sales tax payers, weather and other environmental concerns, working capital and liquidity needs, impact on bond and credit- ratings, economic outlook, emergency requirements, and other contingencies, the Town establishes the following policy regarding the fund balance of the general fund for the Town of Avon, Colorado. The Town of Avon recognizes the need to maintain a prudent level of fund balance to protect against reducing service levels or raising taxes and fees because of temporary shortfalls or unpredicted one-time expenditures. The level of combined fund balances in the General Fund, Transit Fund, and Fleet Maintenance Fund that the Town will maintain as unreserved and undesignated an amount targeted to be equal to 35% (approximately four months equivalent) of the Town's General Fund, Transit Fund and Fleet Maintenance Fund operating expenditures. Unusual items that would distort this calculation (e.g. one-time revenues and expenditures) shall be excluded. Any fund balance in excess of the amount calculated above may be utilized for any other municipal fiscal purpose, without limitation. This policy is adopted by the Town of Avon in order to recognize the financial importance of a stable and sufficient level of fund balance. The Town reserves the right to appropriate funds from fund balance for emergencies and other requirements the Town believes to be in the best interest of the Town. Tovm of Avon M o To: Honorable Mayor and Town Council Thru: Lang Brooks, Town Manager From: Scott Wright, Finance Directo Date: November 22, 2006 Re: Fund Balance Policy Summary: The attached resolution adopting a fund balance policy for the Town is a result of discussion among staff and inquiries of other towns regarding what is an appropriate level of fund balance given the Town of Avon's financial circumstances. Discussion: Attached is a calculation of staffs recommended minimum fund balance reserve both on a dollar amount basis and percentage of operating expenditure basis. The recommended percentage of operating expenditures is 35% which is the equivalent of approximately four months of operations. This figure that was arrived at seems to be appropriate given the actual fund balance that the Town is projecting for 2007, as well as the level of fund balance that other towns have deemed necessary in their policies. Below is a sample of towns in the Colorado Association of Ski Towns (CAST) that responded to the Town's inquiry as to their respective fund balance reserve policies: Frisco 75% Mintum 50% Dillon 25-50% Breckenridge 25% Estes Park 30% At the worksession on Tuesday, l will have a brief powerpoint presentation to review our calculations in more detail and present some historical information on the Town's fund balances. Page 1 ;f Town Manager Comments: Attachments: Calculation of Recommended Fund Balance Reserve Resolution No. 06-52 Exhibit A - Fund Balance-Reserve Policy • Page 2 J TOWN OF AVON CALCULATION OF RECOMMENDED FUND BALANCE RESERVE NOVEMBER 28, 2006 2007 Operating Expenditures: General Fund $ 11,810,738 Transit Fund 2,862,492 Fleet Maintenance Fund 2,174,105 Total 16,847,335 Calculation of Recommended Reserve Percentage Base Reserve for Liquidity and Working Capital 15:00% Reliance on Sales Tax Revenues /Tourism-Based Economy 7.50% Reliance on One Major Sales Tax Payor 7.50% Required, TABOR Emergency Reserve 3.00% 33.00% 5,559,621 Other Contingencies: Gondola Contribution - 2008 and Beyond 300,000 Total Recommended Fund Balance Reserve $ 5,859,621 _ As a Percentage of 2007 Operating Expenditures 34.78% I RESOLUTION NO. 06-52 SERIES OF 2006 A RESOLUTION TO'ADOPT A FUND BALANCE RESERVE POLICY FOR THE TOWN OF AVON GENERAL FUND WHEREAS, a formalized fund balance policy is an indication of good fiscal management and exists as a_positive disciple in long-term financial management; and WHEREAS, The Town of Avon recognizes the importance of maintaining an appropriated level of undesignated fund balance in order to mitigate current and future financial risks; and WHEREAS, the Town of Avon is highly depended on sales tax revenues in a tourism-based economy. . NOW; THEREFORE, BE IT HEREBY RESOLVED, that the Town Council of the Town of Avon, Colorado, adopts a FUND BALANCE POLICY, a copy of which is attached and marked as EXHIBIT A. ADOPTED this 28t" day of November, 2006. TOWN OF AVON, COLORADO Ronald C. Wolfe, Mayor ATTEST: Patty McKenny Town Clerk EXHIBIT A TOWN OF AVON FUND BALANCE POLICY November 28, 2006 Background. The term fund balance is used to describe the net assets of governmental funds calculated in accordance with generally accepted accounting principles (GAAP) and is intended to serve as a measure of the financial resources available in a governmental fund. It is essential that the Town maintain adequate levels of fund balance to mitigate current and future risks (e.g. revenue shortfalls and unanticipated expenditures). Fund balance levels are an important consideration in long-term.financial planning and credit agencies carefully monitor levels of fund balance in a govennunent's general fund to evaluate a eovernment's continued creditworthiness. Because of the Town's dependence on sales tax revenue in a tourism-based economy a conservative approach to managing fund balances reserves is warranted. After evaluating the Town's operating characteristics and financial resources available in other funds, reliability and seasonality of revenue sources, reliance on individual sales tax payers, weather and other environmental concerns, working capital and liquidity needs, impact on bond and credit ratings, economic outlook, emergency requirements, and other contingencies, the Town establishes the-following policy regarding the fund balance of the general fund for the Town of Avon, Colorado. The Town of Avon recognizes the need to maintain a prudent level of fund balance to protect against reducing service levels or raising taxes and fees because of temporary shortfalls or unpredicted one-time expenditures. The level of combined fund- balances in the General Fund, Transit Fund, and Fleet Maintenance Fund that the Town will maintain as unreserved and undesignated is an amount equal to or greater than 35% (approximately four months equivalent) of the Town's General Fund, Transit Fund and Fleet Maintenance Fund operating expenditures. Unusual items that would distort this calculation (e.g. one-time revenues and expenditures) shall be excluded. Any fund balance in excess of the amount calculated above may be utilized for any other municipal fiscal purpose,, without limitation. This policy is adopted by the Town of Avon in order to recognize the financial importance of a stable and sufficient level of fund balance. The Town reserves the right to appropriate funds from fund balance for emergencies and other requirements the Town believes to be in the best interest of the Town.