Translate[Archived] Question #22: Should our spendable fund balance limits be adjusted given bond rating agency expectations?
Question:
Should our spendable fund balance limits be adjusted given bond rating agency expectations?
Response:
The City currently has two financial policies related to Spendable Fund Balance:
- Spendable Fund Balance as a Percentage of General Fund Revenue - 10% floor; No target; 15.96% as of June 30, 2017
- Unassigned Fund Balance as a Percentage of General Fund Revenue - 4% floor; 5.5% target; 9.00% as of June 30, 2017
These two ratios help to show how much the City has available in Fund Balance compared to how much is needed annually to fund the budget. City Council's policies include a floor for each ratio to ensure that the City maintains sufficient funds to address unforeseen events. Spendable Fund Balance is all Fund Balance that is available for use, including those funds that may have been committed or assigned for a future purpose. Spendable Fund Balance does not include funds that have been reserved for another purpose and cannot be reprogrammed. These could be already restricted through encumbrances for contractual purposes or non-spendable resources, such as inventory. Unassigned Fund Balance is a subset of Spendable Fund Balance that is not only unrestricted in anyway, but has not been committed or assigned for any future purpose.
In recent years the rating agencies have indicated that the City should be cautious to not allow the ratios to go below the floor, and has encouraged the City to try to increase these ratios to be more closely in line with other AAA/Aaa jurisdictions. It should be noted that not all AAA/Aaa have the same revenue structure and most of which are much smaller governments which need larger percentage fund balances. Also, Alexandria receives the majority of its revenue from the Real Estate tax base, which is extremely stable, while other jurisdictions receive revenue from a local income tax which is much more susceptible to economic volatility.
Staff does not recommend making any changes to the floors at this time. Currently the financial position reflects ratios that are sufficiently above the floor. It would be staff’s recommendation to keep the current ratios, but increase the dollar amounts as the City’s overall budget grows.