HomeMy Public PortalAboutResolution No. 496-18 07-09-2018RESOLUTION 496-18
A RESOLUTION ADOPTING THE FINANCIAL MANAGEMENT POLICIES FOR THE CITY OF
RICHLAND HILLS, TEXAS; AND DECLARING AN EFFECTIVE DATE.
WHEREAS, the City Manager and the Finance Director have prepared a revision of the financial
management policies document in an effort to conduct and continue to improve the City's
financial operations and systems, and
WHEREAS, it is in the City of Richland Hills best interest to adopt financial management
policies that clearly state the fiscal operations of the City.
NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF
RICHLAND HILLS, TEXAS:
Section 1. That all of the above premises are found to be true and correct and are incorporated
into the body of this Resolution in its entirety and presented on the Financial Management
Policies as attached.
Section 2. That the revised Financial Management Policies document, prepared and submitted
by the City Staff be approved.
Section 3. That this resolution will become effective immediately following its final passage and
approval.
PASSED AND APPROVED on this 9th day of July, 2018.
Mayor Edward Lopez
ATTEST:
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City Secretan athy Bourg ;
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CITY OF RICHLAND HILLS, TEXAS
FINANCIAL MANAGEMENT POLICIES
July 9, 2018
CITY OF RICHLAND HILLS, TEXAS
FINANCIAL MANAGEMENT POLICIES
TABLE OF CONTENTS
I. Purpose Statement...................................................................... 1
II. General Implementation & Compliance Guidelines .. .. . . .. .. .. . . . . . . . . . .. . . . . .. 1
A. Finance/Audit Committee
B Annual Review
C. Implementation, Compliance & Review
Ill. Accounting, Auditing & Financial Reporting .. .. . . . . .. .. .. .... .. .. .. . . . . . . .. .. . . . .. 2
IV. Operating Budget . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
A. Preparation
B. Balanced Budget
C. Reporting
D. Control
E . Activity Indicators & Statistics
F. Operating Position
V. Revenue Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
A. Annual Estimates
B. Sources of Revenue
VI. Expenditure Control . . .. . .. . . . . .. . .. . .. . .. . .. . .. . .. . .. . . .. .. . .. . .. . .. . . . . .. . .. . .. . .. . .. . . 9
A. Appropriations
B . Amendments to the Budget
C . Central Control
D . Purchasing
E. Prompt Payment
F. Equipment Financing
G. Risk Management
H. Intergovernmental Relations
VI I. Asset Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
A. Investments
B . Cash Management
C. Fixed Assets & Inventory
D . Depositories
City of Richland Hills , Texas
Table of Contents (continued)
VIII. Capital Budget and Improvement Program .. .. . .. . . . . .. . ...... .. . . . . .. . ... . .. . .. . . 11
A. Preparation
B. Control
C. Program Plann ing
D. Infrastructure Maintenance
F. Reporting
IX . Financial Conditions and Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
A. Operational Coverage
B. General Government Reserves
C. Fund Balance Classifications
D. Capital Projects & Debt Service Funds
X. Treasury and Debt Management .. . . . . . .. .. .. .. .. .. .. .. . . . . .. .. . . . . .. .. .. .. . . . . . . . . .. 14
A. Cash Management
B. Investments
C. Types of Debt
D. Financing Alternatives
E. Disclosure
F. Federal Requirements
G. Debt Structuring
H. Debt Issuance
I. Debt Refunding
XI . Internal Controls ............................................................................ 17
A. Written Procedures
B. Departmental Responsibilities
XI I. Staffing and Training .................................................. · .................... 18
A. Adequate Staffing
B. Training
C. Awards, Credentials & Recognition
XIII. Annual Policy Review & Reporting .................................................... 19
I. Purpose Statement
The intent of the following Financial Management Policies is to enable the City of Richland
Hills , Texas (the "City") to achieve a long-term stable and positive financial condition . The
guiding principles of the City's financial management include integrity , prudent stewardship ,
planning , accountability , and full disclosure .
The more specific purpose of this policy is to provide guidelines to the Finance Director and
the City Manager in planning and directing the City's day-to-day financial affairs and in
developing recommendations to the City Council.
The scope of these policies generally spans , among other issues , accounting , auditing ,
financial reporting , internal controls , operating and capital budgeting , revenue management,
cash and investment management , expenditure control , debt management, and planning
concepts , in order to:
a) Present fairly and with full disclosure the financial position and results of financial
operations of the City in conformity to generally accepted accounting principles (GAAP)
as set forth by the governmental accounting standards board (GASS), and
b) Determine and demonstrate compliance with finance related legal and contractual issues
in accordance with provisions of the Texas Local Government Code , City Charter and
other relevant mandates .
II. General Implementation and Compliance Guidelines
A. FINANCE/AUDIT COMMITTEE . A committee designated as the Finance Committee , will
be appointed annually by the City Council and will consist of two members of the
Council , the City Manager and the Finance Director. The committee will meet quarterly ,
or as needed. The function of the committee will be:
1) Fiscal policy review ,
2) Auditor selection recommendation,
3) Investment policy review and guidance , and
4) Long-term financial planning .
B. ANNUAL REVIEW. Based upon the results and recommendations of the Finance
Committee review , the City will annually approve new or revisions to fiscal policies.
C . IMPLEMENTATION , COMPLIANCE AND REVIEW. The Finance Director will be
accountable for implementing these policies and will to the best of his/her knowledge
make the City Manager, Finance Committee and City Council aware of any variances in,
practice from these policies or any other deviation from prudent financial practices in
accordance with GAAP , state/federal laws and/or ethics of the profession . Any variances
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may be presented at quarterly meetings of the Finance Committee , unless there is a
need for a special meeting .
Ill. Accounting , Auditing and Financial Reporting
A. ACCOUNTING. The City is solely responsible for the reporting of its financial affairs ,
both internally and externally .
B . AUDITING . An independent certified public accounting (CPA) firm will perform annual
financial audits .
1) Qualifications of the Auditor. In conformance with Texas Local Government Code ,
Title 4 , Chapter 103 , the City shall have its records and accounts audited annually
and shall have an annual financial statement prepared based on the audit performed
by external independent accountants ("auditor").
2) Auditor Repute. The auditor must be a Certified Public Accounting (CPA) firm of
good reputation and must demonstrate that it has the breadth and depth of staff to
conduct the City's audit in accordance with generally accepted auditing standards
and contractual requirements. The auditor must be registered as a partnership or
corporation or certified public accountants , holding a license in the state of Texas ,
capable of demonstrating that it has sufficient staff which will enable it to conduct the
City's audit.
3) Timing . The auditor's report on the City's financial statements will be completed
within 180 days of the City's fiscal year end.
4) Management Letter. The independent CPA firm shall provide a management letter, if
one is issued , no later than March 31 following the end of each fiscal year. The
Finance Director shall respond in writing to the City Manager and City Council
regarding the auditor's management letter, addressing the issues contained therein .
The Council shall schedule its forma l acceptance of the auditor's report upon the
resolution of any issues resulting from the year-end audit.
5) Responsibility of Auditor to City Council. The auditor is accountable to the City
Council and will have access to d irect commun ication with the City Council if the City
Staff is unresponsive to auditor recommendations or if the auditor considers such
communication necessary to fulfill its legal and professional respons ibilities.
6) Rotation of Auditor. The City will circulate requests for proposal for audit services at
least every five years. Should the City Council be dissatisfied with the auditor's
performance , it may request new proposals at any time . Year to year authorization to
continue shall be done by no later than July 1st of each year.
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7) Auditor Accountability to Staff. The auditor shall provide the Finance Director with
copies of all work papers/support documentation and schedules upon completion of
the audit. Originals will be maintained at the auditor's office.
C. FINANCIAL REPORTING
1. External Reporting .
a. Scope. The Financial Report shall be prepared in accordance with generally
accepted accounting principles (GAAP) as promulgated by the Government
Accounting Standards Board (GASB).
b. Timing. The Report shall be presented to the City Council within 180 calendar
days of the City 's fiscal year end. If City staffing limitations preclude such timely
reporting , the Finance Director will inform the City Manager and Council of the
delay and the reasons thereof.
c. Awards. Upon approval of the City Council , the Annual Financial Report may be
presented annually to the Government Finance Officer's Association (GFOA) for
evaluation and consideration for the Certificate of Achievement for Excellence in
Financial Reporting. (Refer to Section XII , C for more detail).
2 . Internal Reporting . The Finance Department will prepare internal financial reports ,
sufficient to plan , monitor, and control the City's financial affairs. Internal financial
reporting objectives are addressed throughout these policies.
IV. Operating Budget
A. PREPARATION . Budgeting is an essential element of the financial planning , control ,
and evaluation process of municipal government. The City's operating budget is the
City's annual financial operating plan .
1. Scope. The scope of the budget includes all funds for which the City will adopt a
formal budget , including Governmental Funds and Proprietary Funds.
2. Budgetary Process . The budget is prepared by the City Manager or his/her
designee with the cooperation of all City Departments. The budget should be
presented to the City Council at least 90 days prior to fiscal year end , and should
be enacted by the City Council prior to fiscal year end.
The budget process is completed in several steps and it is initiated by the City Manager.
The first step is to calculate the year-end estimate of the current year. Departmental
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Directors/Managers begin the process by preparing estimates for the remainder of the
year. Once the year-end estimates are completed , the departments begin preparing the
proposed estimates for the upcoming fiscal year.
The second step is the calculation of the proposed base budget for the new fiscal year.
This step is the proposed cost for maintaining current base operations , and assumes no
additional personnel or additional equipment. Activities which require additional
resources to maintain the service due to growth , new facilities, new equipment, etc., are
considered enhancements or supplemental requests to the base budget and must be
explained and justified.
The third step is justification for any proposed new programs or
enhancements/supplemental requests. This is defined as any proposed change in
program emphasis , expenditures of funds , allocation of personnel or equipment which
will result in a change in the level of service currently being delivered. Departments will
have to describe the program , itemize all new costs , proposed personnel as well as the
reason supporting the request. Each request is prioritized according to need as
perceived by the departmental unit.
During the budget process, each department head will review and discuss their
budgetary needs with the City Manager. Once all departments have finalized their base
and enhancement proposals , the City Manager prepares a comprehensive report on all
enhancements by priority and submits this information as part of the proposed annual
operating budget to the City Council.
3. Awards. If feasible and approved by the City Council , the annual operating
budget may be submitted to the GFOA annually for evaluation and consideration
for the Award for Distinguished Budget Presentation.
4. Basis of Budgeting. The basis of budgeting will be the same as the basis of
accounting; that is, budgets for the General Fund , Special Revenue Funds , Debt
Service Funds and Capital Projects Funds are prepared on the modified accrual
basis of accounting -this means that obligations of the City (for example
outstanding purchase orders) are budgeted as expenses but revenues are
recognized only when they are actually received. Budgets for the Proprietary
(Water-Wastewater and Drainage) Funds , on the other hand , are prepared on a
full accrual basis -expenditures are recognized when a commitment is made
and revenues are also recognized when they are obligated to the City.
5. Financial Forecast. A five-year financial forecast shall be prepared annually
projecting revenues and expenditures for all operating and capital project funds.
This forecast shall be used as a planning tool in developing the following year's
operating budget.
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6. Proposed Budget Format. A proposed budget shall be prepared by the City
Manager with the participation of all of the City's Directors/Managers. The budget
shall include at least four basic segments for review and evaluation. These
segments are: (1) personnel costs, (2) operations and maintenance costs, (3)
capital and other (non-capital) project costs, and (4) revenues. A format should
be used such that prior year actuals, current year budget and revised, and next
year proposed are all clearly shown .
8. Council Participation. The budget review process shall include Council
participation in the development of each of the four segments of the proposed
budget and a Public Hearing to allow for citizen participation in the budget
process. The budget process shall span sufficient time to address policy and
fiscal issues by the Council. The budget process will be coordinated so as to
identify major policy issues for Council consideration prior to the budget approval
date so that proper decision analysis can be made .
9 . Filing and Adoption. Upon the presentation of a proposed budget document
acceptable to the Council , the Council shall call and publicize a public hearing
and adopt by Ordinance such budget as the City's Official (Adopted) Budget,
effective for the fiscal year beginning . A copy of the proposed budget shall be
filed with the City Secretary.
10 . Amending the Official (Adopted) Budget. Council may amend the budget for
municipal purposes in accordance with state law. The City Manager is authorized
to make line-item and departmental budget adjustments during the year in order
to avoid over-expenditures of particular line items. Adjustments do not require
further Council action if the total appropriation of each fund as set forth in the
adopted budget is not exceeded. Expenditures in excess of the adopted budget
appropriations for each fund require budget amendments.
11 . Encumbrances. Encumbrances outstanding at the end of each fiscal year shall
expire at the end of the fiscal year, except for capital project funds . These shall
be reflected as reservations of fund balance. Subsequent year's payments on
previously encumbered capital project funds will be reflected as expenditures of
the prior year with a corresponding decrease of the reservation of fund balance .
B . BALANCED BUDGET. The operating budget will be balanced with current revenues and
other resources greater than or equal to current expenditures/expenses. Use of
beginning balances and other reserves to balance operations will be disclosed in the
document with the underlying rationale. The adoption of a balanced budget, where
current resources (current revenues plus fund balance or unassigned fund balance) shall
be required . Current resources will equal or exceed current expenditures for each
individual fund.
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C. REPORTING . Monthly financial reports will be prepared to enable the Department
Managers/Directors to manage their budgets and to enable the Finance Director to
monitor and control the budget as authorized by the City Manager. Such reports will be
in format appropriate to enable Council to understand the budget status at a level of
summary executive detail.
D. CONTROL. Operating Expenditure Control is addressed in Section VI.
E. ACTIVITY INDICATORS AND STATISTICS. Where appropriate , activity indicators and
statistics will be used as guidelines and reviewed for efficiency and effectiveness. This
information will be considered in the annual budgeting process and reported to the City
Council when appropriate . The proposed annual budget shall also integrate performance
measures , goals and objectives , service levels and productivity measures where
appropriate .
F . OPERATING POSITION. The guidelines that the Town should be following to assure
fiscal stability are those outlined in Section IX -Financial Condition/ Reserves/Stability
Ratios.
V. Revenue Management
A . ANNUAL ESTIMATES . Annual estimates of revenue in both the General Fund and
Proprietary Funds shall be based on historical trends and reasonable expectation of
growth. A conservative approach shall be observed in estimating revenues , so that
revenue estimates will not be overstated . The City will strive for the following optimum
characteristics in its revenue system:
1. SIMPLICITY. The City , where possible and without sacrificing accuracy , will strive to
keep the revenue system simple in order to reduce compliance costs and to make it
more understandable to the taxpayer or service recipient.
2 . CERTAINTY . A knowledge and understanding of revenue sources increases the
reliability of the revenue system. The City will understand its revenue sources and
enact consistent collection policies to provide assurances that the revenue base will
materialize according to budgets and plans.
3 . EQUITY. The City shall make every effort to maintain equity in its revenue system
structure ; i.e., the City shall seek to minimize or eliminate all forms of subsidy
between entities , funds , services , utilities and customers . The City shall require that
there be a balance in the revenue system; i.e ., the revenue base will have the
characteristic of fairness and neutrality as it applies to cost of service.
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4. ADMINISTRATION. The benefits of a revenue source will exceed the cost of
collecting and admin istering the revenue program . The cost of collection will be
reviewed annually for cost effectiveness as a part of the indirect cost and cost of
services analysis . Where appropriate , the City will use the administrative processes
of the State , Federal or other collection agencies in order to reduce administrative
costs .
5 . DIVERSIFICATION AND STABILITY. In order to protect from fluctuations in a
revenue source due to fluctuations in the economy and variations in weather, a
diversified revenue system will be maintained which has a stable source of income.
This stability is also achieved by a balance between elastic and inelastic sources of
revenues .
6. GRANTS AND RESTRICTED REVENUES. In order to maintain flexibility in the
revenue system , restricted revenues will be kept to a minimum , and shall be pursued
on a cost-benefit basis . All grants and other federal/state , and restricted funds shall
be managed and accounted to comply with the laws , regulations , and guidance of
the grantor.
The City will review all grant submittals requiring an in-kind match requirements to
determine their potential impact on the operating budget, and the extent to which
they meet the City's policy objectives. If there is a cash match requirement, the
source of funding shall be identified and approved prior to application. Prior to
submission , all grant requests/applications shall be reviewed by the City Manager to
ensure the benefits to the City exceeds the administrative costs incurred through the
life of the grant.
The C ity will terminate grant-funded programs and associated positions as directed
by the City Council when grant funds are no longer available , unless alternate
funding is identified .
B. SOURCES OF REVENUES. The following considerations and issues will guide the City
in its revenue policies concerning specific sources of funds :
1. COST/BENEFIT OF ABATEMENT . The City will analyze the benefit of any tax or fee
incentives that are used to encourage development. Ideally , a cost/benefit (fiscal
impact) analysis will be performed as a part of such analysis. Tax abatements may
be offered on improvements to real property owned by the applicant. The abatement
will not be ordinarily considered for projects which would be developed without such
incentives unless it can be demonstrated that higher development standards or other
development and community goals will be achieved through the use of the
abatement.
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2. NON-RECURRING REVENUES. One-time or non-recurring revenues will not be
used to finance current ongoing operations. Non-recurring revenues should be used
only for one-time expenditures such as capital needs .
3 . PROPERTY TAX REVENUES . All real and business personal property located
within the City shall be valued at 100% of the fair market value for any given year
based on the current appraisal values supplied to the City by the Tarrant County
Appraisal District. Total taxable valuation will be reappraised and reassessed in
accordance with State statute, in order to maintain current market values.
A 98% collection rate shall serve each year as a goal for tax collections. All taxes
shall be aggressively pursued each year by the City's appointed tax
assessor/collector. Tax accounts delinquent July 1st shall be submitted for collection
each year to an attorney selected by the City Council. A penalty shall be assessed
on all property taxes delinquent in accordance with State law and shall include all
court costs , as well as an amount for compensation of the attorney as permitted by
State law and in accordance with the attorney's contract with the City.
4. SALES AND USE TAX REVENUE. The State Comptroller Office collects ,
administers and disburses this revenue each month. The Texas sales and use tax
rate is 6.25%, but local taxing jurisdictions may also impose a sales and use tax up
to 2% for a total maximum combined rate of 8.25%.
The City, through its Economic Development Corporation , will encourage and
participate in economic development efforts to expand the City's economy, to
increase local employment and to invest in the community when there is a defined
specific long-term return .
5. INTEREST INCOME. Interest earned from investment of available funds, whether
pooled or not, will be distributed to the funds in accordance with the operating and
capital budgets which , wherever possible, will be in accordance with the equity
balance of the fund from which funds were provided to be invested.
6 . USER-BASED FEES AND SERVICE CHARGES. For services associated with a
user fee or charge, the direct and indirect costs of that service will be offset by a fee
where possible. There will be an annual review of fees and charges to ensure that
fees provide adequate coverage of costs of services. User charges may be classified
as "Full Cost Recovery", "Partial Cost Recovery ," and "Minimal Cost Recovery,"
based upon City Council approval.
7. UTILITY RATES . The City will review and/or adopt utility rates annually that will
generate revenues required to fully cover operating expenditures, meet the legal
restrictions of all applicable bond covenants (when applicable),and provide for an
adequate level of working capital. This policy does not preclude drawing down cash
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balances to finance current operations. However, it is best that any extra cash
balance be used instead to finance capital projects .
8. REVENUE MONITORING. Revenues actually received will be regularly compared to
budgeted revenues and variances will be investigated. This process will be
summarized in the appropriate monthly financial report .
VI. Expenditure Control
A. APPROPRIATIONS. The level of budgetary control is at the Department budget level in
the General and Proprietary Funds , and at the fund level in all other funds. When budget
adjustments within a department are necessary, these must be approved by the City
Manager, provided the transfer amounts between general classifications of expenditures
do not result in a net increase in total appropriations. When budget adjustments between
funds are necessary , these must be approved by the City Council through a budget
amendment.
All budget appropriations (except for capital projects) lapse at year-end (September 30).
Any encumbered appropriations at year-end may be re-appropriated by the City
Manager in the ensuing fiscal year. Such re-appropriations shall be subsequently
reporting to the City Council. Except in emergency situations , and only upon approval by
the City Counci l, no department shall exceed appropriations .
B. AMENDMENTS TO THE BUDGET. The City Council shall approve any budget
modification resulting in net increase in appropriations , or any proposed use of available
funds .
C. CENTRAL CONTROL. Significant salary (vacancy) or capital budgetary savings in any
Department will be centrally controlled and may not be spent by the Department without
the prior authorization of the City Manage r.
D. PURCHASING. All purchases should be in accordance with the City's purchasing
policies as defined in the Purchasing Policy . The City 's procurement process is
governed by state and federal law, as well as the City's Purchasing Policy.
E. PROMPT PAYMENT . All invoices approved for payment shall be paid by the Finance
Department within thirty (30) calendar days of receipt. Procedures will be used to take
advantage of all purchase discounts where considered cost effective . However,
payments will also be reasonably delayed in order to maximize the City's investable
cash , where such delays does not violate the agreed upon payment terms.
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F. EQUIPMENT FINANCING . Equipment is accounted for at the original acquisition cost,
which includes purchase price plus any costs incurred to place the equipment in service .
Equipment may also be leased or financed when the unit purchase price is $50 ,000 or
more and the useful life is at least three years .
G . RISK MANAGEMENT. The City will aggressively pursue every opportunity to provide for
the Public's and City employees ' safety and to manage its risks . The goal shall be to
minimize and/or prevent the financial impact to the City due to claims or losses through
risk transfer and liability insurance.
H. INTERGOVERNMENTAL RELATIONS. When feasible , the City will coordinate efforts
with other governmental agencies to achieve common policy objectives , share the cost
of providing government services on an equitable basis , support appropriate favorable
legislation at the state and federal levels , share facilities and develop joint programs to
improve service to its citizens .
VII. Asset Management
A. INVESTMENTS. The City shall invest funds in accordance with the provisions of the
current Bank Depository Agreement and/or in any negotiable instrument that the Council
has authorized under the prov isions of the Public Funds Investment Act , and in
accordance with the City 's Investment Policy .
B . CASH MANAGEMENT. The City's cash flow will be managed to maxim ize the cash
available to invest. Such cash management will entail the centralization of cash
collections , where feasible , including property tax payments , utility bills , municipal fines ,
building and related permits and licenses , and other collection as appropriate . Cycle
billing will be used where appropriate .
C. FIXED ASSETS AND INVENTORY. These assets will be reasonably safeguarded and
properly accounted for, and prudently insured . A fixed asset of the City shall be defined
as a purchased or otherwise acquired piece of equipment, vehicle , furniture , fixture ,
capital improvement, addition to existing capital investments , land , buildings , or
infrastructure . The cost or value of any such acquisition must be $5 ,000 or more within
an expected useful life greater than two years. All departments with inventory are
required to conduct a physical inventory under their control on at least an annual basis .
D. DEPOSITORIES. The City will enter into a depository agreement with one or more
banks for a specified period of time and specified fess for banking services. The term of
each depository agreement shall not exceed five (5) years unless otherwise approved by
the City Council.
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VIII. Capital Budget and Improvement Program
A. PREPARATION . The City w ill endeavor to develop a capital budget which will include all
capital projects and all capital resources . The budget will be prepared annually on a
fiscal year basis . The capital budget will be prepared by the City Manager or designee
with the involvement of all required departments.
Capital improvements for planning purposes shall be considered all land , land
improvements , building projects , infrastructure (i.e., streets/drainage , water and
wastewater improvements) and equipment.
B . CONTROL . All capital project expenditures must be appropriated in the capital budget.
T he Finance Department must certify the availability of such appropriations or the
availability of resources so any appropriation can be made before a capital project
contract is presented to the Town Council for approval.
C . PROGRAM PLANNING. The capital budget will include capital improvements program
plans for future years . The planning time frame should normally be at least five (5) years.
The replacement and maintenance for capital items should also be projected for the next
five (5) years . Future maintenance and operational costs will be considered , so that
these costs are included in the annual operating budget.
D. INFRASTRUCTURE MAINTENANCE. The City recognizes that deferred maintenance
increases future capital costs. Therefore and when available , a portion of the appropriate
fund's budget will be set aside each year to maintain the quality of the City 's
infrastructure. The inclusion of infrastructure maintenance and replacement costs in the
current operating budget places the burden of the costs and repairs on the current users
of the systems .
E . REPORTING. Periodic financial reports will be prepared to enable the Department
Managers/Directors to manage their capital budgets and to enable the Finance
Department to monitor and control the capital budget as authorized by the City Manager.
Summary capital projects status reports should be presented to the Council periodically .
IX. Financial Conditions and Reserves
A. OPERATIONAL COVERAGE -NO OPERATING DEFICITS . The City will maintain an
operational coverage factor of 1.00 , such that current operating revenues (plus approved
fund balance appropriations) will equal or exceed current operating expenditures .
Deferrals , short-term loans , or one-time sources will be avoided as budget balancing
techniques . Reserves will be used only for emergencies or non-recurring expenditures ,
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except when balances can be reduced because their levels exceed guideline minimums
as stated in Paragraph B .
B . GENERAL GOVERNMENT RESERVES. A key element of the financial stability of the
City is to establish guidelines for fund balance . Unassigned fund balance is an important
measure of economic stability . It is essential that the City maintain adequate levels of
unassigned fund balance to mitigate financial risk that can occur from unforeseen
revenue fluctuations , unanticipated expenditures and similar circumstances .
It is the goal of the City that the unassigned fund balance of the General Fund should be
a minimum of 90 days (24.66%) of the General Fund annual expenditures . A fund
balance reserve may be maintained for general governmental capital projects. The
reserve will be funded with operating surpluses. The reserve will be used for major
capital outlays related to unplanned/emergency projects. As soon as practicable after
each fiscal year end when annual operating results are known , any General Fund
operating surplus in excess of budget, not required to meet ending resource
requirements , may be transferred to the reserve with the approval of City Council.
Use of unassigned fund balance/net position (unrestricted retained earnings) may be
used in a combination of the following:
-One time expenditures that do not increase recurring operating costs ;
-Major capital purchases; and
-Start-up expenditures for new programs undertaken at mid-year provided such
action is considered in the context of multiyear projections of program
revenues and expenditures .
Each Proprietary Fund working capital should be maintained at least at the 24.66% of
total operating expenditures or the equivalent of 90 days.
Should the balances fall below the minimum level set as the objective for that fund , the
City will take action necessary to restore the unrestricted fund balance/net position to
minimal fund reserve required levels. Loans between funds are allowable to be used
only on a temporary basis and only upon Council approval.
C. FUND BALANCE CLASSIFICATION -Governmental Funds
1. Governmental funds report aggregate amounts of five classifications of fund balance
based on the constraints imposed on the use of these resources:
a. Nonspendable. Includes amounts that cannot be spent because they are either
not spendable in form (such as prepaids or inventory) or are legally or
contractually required to be maintained intact (such as endowment funds).
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b. Restricted. Includes amounts restricted by external sources (such as creditors,
laws of other governments , etc.) or by constitutional provision or enabling
legislation .
c. Committed. Includes amounts constrained to specific purposes by a government
itself, using its highest decision-making authority to be reported as committed .
Amounts cannot be used for any other purpose unless the government takes the
same highest level action to remove or change the constraint (such as a City
Ordinance or Resolution)
d. Assigned. Includes amounts a government intends to use for a specific purpose;
intent can be expressed by the governing body or by an official or body to which
the governing body delegates authority. The City Council has the authority to
assign amounts for specific purposes.
e. Unassigned . All amounts not included in other spendable classification.
2. Ending fund balances of the City shall be reported according to the following
classifications :
DEBT SERVICE FUNDS:
010 Interest & Sinking Fund -Restricted
SPECIAL REVENUE FUNDS:
024 Court Security Fund -Restricted
026 RH Economic Development Corp -Restricted
039 Court Technology Fund -Restricted
064 Traffic Safety Fund -Restricted
065 Crime Control District Fund -Restricted
077 Hotel Occupancy Tax -Restricted
CAPITAL PROJECT FUNDS:
012 Oil & Gas Lease Fund -Assigned
020 Capital Project Fund -Assigned
025 Road & Street Improvement Fund -Restricted
3. Order of expenditure --When committed , assigned and unassigned resources can be
used for the same purpose , funds shall be spent in the sequence of committed
resources first , assigned second , and unassigned last.
4. When it is appropriate for fund balance to be assigned, the Council may delegate that
authority to the City Manager.
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D. CAPITAL PROJECTS AND DEBT SERVICE FUNDS
1. Items in the Capital Projects Funds will be completed and paid for within 36 months
of receipt of bonds proceeds . Balances will be used to generate interest income to
offset construction costs.
2 . The City's policy and bond ordinance requirements are to maintain general bonded
debt service reserves at the level of the average annual debt service. Total direct
debt shall not exceed ten (10) percent of the assessed value of taxable property.
3. Revenue obligations will maintain Debt Coverage Ratios as specified by the bond
covenants . The Town is currently required to have net revenues in excess of
average annual debt by 1.25 times. Net revenues must also exceed the maximum
outstanding debt by 1.10 times. Both these tests must be met in order to issue
additional bonds.
4. Obligations of the Richland Hills Economic Development Corporation Fund and the
Hotel Occupancy Tax fund will maintain coverage ratios as specified by bond
covenants , when applicable. If the City issues obligations partially secured by a
limited pledge of the corporations ' sales tax revenues and/or hotel occupancy tax
revenue not subject to the coverage ratios of the revenue bond covenants, coverage
shall be maintained at no less than 1.25 times average annual debt service , and 1.15
times the maximum annual debt service. Both of these tests must be met in order to
issue additional bonds.
X. Treasury and Debt Management
A . CASH MANAGEMENT . Periodic review of cash flow position will be performed to
determine performance of cash management. A detailed policy structure will be followed
with respect to Cash/Treasury Management. The underlying theme will be that idle cash
will be invested with the intent to 1) safeguard assets, (2) maintain liquidity, and 3)
maximize return. Where legally permitted , pooling of investments will be performed .
B. INVESTMENTS. The City will adhere to the investments authorized through the Public
Funds Investment Act and will additionally establish, review and approve a
comprehensive Investment Policy and Investment Strategies on an annual basis . Such
policy will clarify acceptable investment securities , brokers , terms and other pertinent
investment information.
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C . TYPES OF DEBTS
1. SHORT-TERM DEBT . Short-term debt shall be defined as debt requiring five (5)
years or less to retire , and may be used to fund purchases of machinery , equipment
(including office equipment) and vehicles .
2 . LONG-TERM DEBT . Long-term debt will not be used for operating purposes , and the
life of a bond issue will not exceed the useful life of a project financed by that bond
issuance. A resolution of intent to issue bonds authorizing staff to proceed with the
preparations shall be presented for consideration to the City Council when
appropriate.
Certificates of obligation may be issued to finance permanent improvements and
land acquisition if needed between bond elections. The life of the certificates of
obligation issued to finance equipment shall match the life of the equipment, which is
usually three (3) to five (5) years. Certificates of obligation may be backed by a tax
pledge under certain circumstances as defined by law. They may also be backed by
a combination tax and revenue pledge. When appropriate , self-supporting revenues
will pay debt service in lieu of tax revenues.
The City shall obtain voter authorization before issuing General Obligation Bonds as
required by law. Voter authorization is not required for the issuance of Revenue
Bonds . However, at the City 's discretion , the City may elect to obtain voter
authorization for Revenue Bonds .
D. FINANCING ALTERNATIVES. The City will explore all financing alternatives in addition
to long -term debt including leasing , grants and other aid , developer contributions , impact
fees and use of reserves of current available funds .
E. DISCLOSURE. Full disclosure of operations will be made to the bond rating agencies
and other users of financial information . The City staff, with the assistance of financial
advisors and bond counsel, will prepare the necessary materials for presentation to the
rating agencies , will aid in the production of Offering Statements , and will take
responsibility for the accuracy of all financial information released.
F. FEDERAL REQUIREMENTS. The City will maintain procedures to comply with arbitrage
rebate and other Federal requirements.
G. DEBT STRUCTURING. The City will issue general obligation bonds with an average life
of 20 years or less , not to exceed the life of the asset acquired. Total debt service
requirements (principal and interest) in any fiscal year should generally not exceed
twenty-five (25) percent of total expenditures/expenses .
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The structure should approximate level debt service unless operational matters dictate
otherwise or if market conditions indicate a potential savings could result from modifying
the level payment stream. Consideration of market factors, such as the tax-exempt
qualification, minimum tax alternative, and so forth will be given during the structuring of
long-term debt instruments .
H . DEBT ISSUANCE.
1. Bond Elections . Before a bond election, the City Manager, Finance Committee and
City Council-members will be provided with competent debt capacity analyses, tax
and user fee impact projections and other information as directed by the City
Manager. The Bond Counsel and Financial Advisor will provide support during the
process .
2. Method of Sale . The City will use a competitive bidding process in the sale of bonds
unless the nature of the issue warrants a negotiated bid. In situations where a
competitive bidding process is not elected, the City will publicly ·present the reasons
why, and the City will participate with the financial advisor in the selection of the
underwriter or direct purchaser.
3. Bidding Parameters. The notice of sale will be carefully constructed so as to ensure
the best possible bid for the City in light of the existing market conditions and other
prevailing factors. Parameters to be examined include:
• Limits between lowest and highest coupons
• Coupon requirements relative to the yield curve
• Method of underwriter compensation, discount or premium coupons
• Use of True Interest Cost (TIC) vs. Net Interest Cost (NIC)
• Use of bond insurance
• Original Issue discount bonds/Capital Appreciation Bonds
• Variable rate bonds
• Call provisions
4. Bond Issuance Costs. The City will be involved in the selection of all financial
advisors , underwriters, paying agents, and bond counsel. The City shall evaluate the
merits of rotating professional advisors and consultants and the kinds of services and
fee structures available from independent financial advisors , investment banking
firms, and commercial banks . The City will carefully itemize and scrutinize all costs
associated with the issuance of bonds .
5. Bond Counsel Involvement. The Bond Counsel will issue an opinion as to the
legality and tax exempt status of any obligations . The City will also seek the advice
of the Bond Counsel on all other types of financing and on any other questions
involving federal tax or arbitrage law. Bond Counsel is also responsible for the
preparation of the ordinance authorizing issuance of obligations and all of the closing
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documents to complete their sale and will perform other services as defined by
contract approved by Council.
6. Financial Advisor. The City will seek the advice of the Financial Advisor when
necessary. The financial advisor will be expected to provide planning and analytical
services which extend beyond the issuance of debt. To ensure independence , the
Financial Adv isor will not bid on nor underwrite any City debt issues.
7. Ratings . The rating agencies will be notified either by telephone or through written
correspondence when the City begins preparation for a debt issuance. After the
initial contact, a formal ratings application will be prepared and sent along with the
draft of the Official Statement related to the bond sale to the rating agencies. This
application and related documentation should be sent several weeks prior to the
bond sale to give the rating agencies sufficient time to perform their review . Meetings
with representatives of the rating agencies should be scheduled every few years or
whenever a major project is initiated.
8. Official Statement. Information for the Official Statement is gathered from
departments throughout the City. The Finance Director will begin assembling the
information needed to update the Official Statement. At least eight (8) weeks prior to
an anticipated bond issuance .
I. DEBT REFUNDING -City staff and the financial advisor shall monitor the municipal
bond market for opportunities to obtain interest savings by refunding outstanding debt.
A proposed refunding debt, for interest cost savings , should provide a present value
benefit as a percent of refunded principal of at least 5%.
XI. Internal Controls
A . WRITTEN PROCEDURES. Written procedures will be established and maintained by
the Finance Director for all functions and financial cycles including cash handling and
accounting . These procedures will embrace the general concepts of fiscal responsibility
set forth in this policy statement.
B. DEPARTMENTAL DIRECTORS/ MANAGERS RESPONSIBILITY. City administrators
and manager/supervisors are charged with the responsibility for establishing a network
of processes with the objective of controlling the operations of the City in a manner
which provides reasonable assurance that:
1. Data and information published either internally or externally is accurate , reliable ,
complete and timely.
2. The actions of administrators and employees are in compliance with the City's
plans , policies and procedures and all relevant laws and regulations .
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3 . The City 's resources including its people , systems , data/information , assets and
citizens are adequately protected.
4. Resources are acquired economically and employed effectively.
5. The City 's internal controls promote the achievement of plans , programs , goals
and objectives.
Each Department Director/Manager is responsible to ensure that good internal controls
are followed throughout his/her Department , that all Finance Department directives or
internal controls are implemented and that all independent auditor internal control
recommendations are addressed.
XII. Staffing and Training
A. ADEQUATE STAFFING . Staffing levels will be adequate for the fiscal functions of the
City to operate effectively . Overtime shall be used only when necessary. Workload
shedding alternatives will be explored before adding staff.
B . TRAINING . The City will support the continuing education efforts of all financial staff
including the investment in time and materials for maintaining a current perspective
concerning financial issues. Staff will be held accountable for communicating , teaching ,
sharing with other staff members all information and training materials acquired from
seminars , conferences and related education efforts.
C. AWARDS , CREDENTIALS AND RECOGNITION . The City will support efforts and
involvements which result in meeting standards and receiving exemplary recitations on
behalf of any of the City's fiscal policies, practices , processes , products , or personnel.
The City will strive to maintain a high level of excellence in its accounting policies and
practices as it prepares its Annual Financial Report. If feasible , the report will be
presented to the Government Finance Officers Association (GFOA) for review of
qualifications necessary to obtain the Certificate of Achievement for Excellence in
Financial Reporting. Additionally, the City will consider the submission of its annual
budget to GFOA for consideration for Distinguished Budget Award.
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XIII. Annual Policy Review and Reporting
These policies will be reviewed administratively by the City Manager and Finance
Director at least annually, prior to the preparation of the operating budget and will be
presented to the City Council for confirmation of any significant changes.
The Finance Director will report annually to the Finance/Audit Committee on compliance
with these policies .
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