Thank you so much, Mayor.

You all knew it was coming.

We're going to put the fun in fund balance policy.

So here it comes.

All right.

Got that out of the way.

We got to start with the first things first.

The impetus for this work session was some conversation around council contingency reserve.

And there was some talk about that last year during this council retreat.

And some desire to address balances in not only council contingency reserve but also reserves across the organization.

And then you drill down from there.

And so we got we got to start, we got to start at the highest high level.

So the agenda for tonight, we're going to start with what is it?

Fund balance policy, the background purpose.

Number two, current city policy, what it is.

So what is it?

What it is, proposed revisions, what it could be, timeline and next steps is uh gonna be what it takes.

So with that, um right, clearing up a couple of things on on as far as the timeline and next steps.

Uh there's there's some procedural questions that we're going to have to get to.

I and in evaluating fund balance policy for the entire organization, the topics like council contingency reserve and some of those other reserves are really procedural in nature, and so we're gonna just need to drill down on those later, and in the draft language of the fund balance policy that's included in your packet.

It speaks to that about the regular budget process as some of those reserves are subject to appropriation by the city council.

Though we recognize that management staff has a uh role to play in that with recommendations as well.

So fund balance policy is a way for all of us to agree on what that process is, do it regularly, and uh revise it as the needs of the organization dictate.

So here we are.

We're going to try to bring this to bear throughout the budget process this year this year, and hopefully adopt a fund balance policy by uh December when we adopt the 26th operating budget.

So without further ado.

The fund and fund balance.

It's uh funds are distinct subsidiaries within uh within a government entity, right?

So this is this is an accounting convention that uh that we employ in many governments across the nation also employ is using fund accounting to separate and organize the uses and um operations of any of any or of any government entity.

Those categories, governmental proprietary fiduciary, you're gonna hear that type of thing now and then.

Um just note that that those just reference fund balance or uh funds within a within a government entity.

There are also the types, right?

So general fund is where most of the activity is going to take place, especially in our structure and form of government, and and really in any form of government, the general fund is if there is not a specific if there are not specific rates and fees that drive the uh operations, then it just all belongs in general fund.

Um we have special revenue funds within the within the organization, those as far as the city of Aldi's is concerned, airport, port, harbor, those are all the I'm naming distinct special revenue funds.

There's also utility fund, which contains two departments.

One of them is water, one of them is sewer, but it's all contained under one fund called utility fund.

So those are just some of the different types.

You'll hear me reference debt service fund once in a while, debt service fund.

The only function of that is to separate bond proceeds or bonded indebtedness, and so by function that that fund, a debt service fund is distinct within the city's books, but it should always be zero by the end of the year because your your payments to debt service should equal whatever you're appropriating to it in any given year.

Right.

I'm not gonna nerd out too much on this, sorry about that.

Uh went a little bit too far.

The final point, and really the only thing that matters is down here at the bottom, the bullet point that just says fund balance is equivalent to owner ownership equity.

So if you're in a private organization, you're gonna talk about ownership equity.

Fund balance is that it's available spendable resources, which is the important stuff and segues to the next slide here.

Oh, right.

Sorry about that.

So available spendable resources.

The first bullet point under the under the top, they're providing a financial cushion to mitigate current future risks.

That is I think one of the most important things when we consider fund balance policy.

And when I reference GFOA, I'm referencing the government finance officers association.

This is just simply an association that provides guidelines for nerdy topics like fund balance policy.

So we're looking at GFOR GFOA recommendations down at the bottom, and in bold, a government should establish a formal fund balance policy that reflects its own specific circumstances.

Valve's is very unique, has a very unique situation.

There are times where the uniqueness is even more unique, and so having a fund balance policy that is flexible to uh expand or contract based on uh circumstances is incredibly useful and important.

So what it is today, the current policy, there's not a comprehensive standalone policy.

There is some code language that speaks to it in different areas of code.

This does not need to be codified, though some we'll have to address some of the codified language and make sure that we're in agreement with that.

But what we found is that the city's fund balance, depending on how you slice the pie, has landed at about eight months of expense.

So I reason that's a good place to start when crafting fund balance policy is to look at how we've landed, and um the level of a the level of fund balance that the organization currently has, and just use that as a starting point.