Staff recommends approval of the attached resolution establishing a plan to bring General Fund cash reserves into compliance with the adopted cash reserve policy.
On August 13, 2007, the City made substantive changes to the Fund Balance Policy (now known as the Cash Reserve Policy), the Transfer Policy, and the Special Transfer Policy. These changes clarified the way in which reserves are calculated, and strengthened the creditworthiness of the utilities by removing certain loopholes that could result in insufficient liquidity. The changes were well-received by Wall Street analysts, which contributed to our good bond ratings, lower bond insurance costs, and lower interest rates on our 2007 bonds.
Another major change in 2007 included the removal of certain special revenues from the General Fund. Staff recognized that the presence of these restricted revenues within the General Fund obscured the actual liquidity of the fund. One could believe that usable residual equity existed within the General Fund that was actually restricted to a specific use. Staff determined that the restricted funds should be segregated and sought the opinion of the City’s auditor, Purvis Gray. They concurred, and staff then moved the funds out of the General Fund.
A total of $1,116,588 was removed and placed in various funds dedicated solely to their use. The expected result of this move is the reduction of liquidity in the General Fund. The City is now non-compliant with the Cash Reserve Policy by an estimated $1.05M. This number is subject to change, as it is based on unaudited year-end financials. Nonetheless, this reveals the need to add significant cash reserves to the General Fund in order to achieve compliance and ensure adequate funds are available in the event of emergency.
Pursuant to the adopted policy (Section 2-231), the following is a proposed 3-step plan to restore compliance. Step 1 will eliminate the deficit. Steps 2 and 3 will provide on-going assurance that deficit spending will not compromise future compliance.
1. Approve the Resolution as presented; or
2. Such alternative action as the Commission may deem appropriate
The City could realize a positive fiscal impact between $3.5M and $5.5M from the sale of the land. At a minimum, at least $1.2M should be provided to the General Fund to restore reserves.
Prepared by: Jay M. Evans
Attachments: Yes_X_ No ______
Advertised: ____Not Required ______
Attorney Review : Yes___ No ____
Reviewed by: Dept. Head ________
Finance Dept. __________________
Deputy C.M. ___________________
City Manager ___________________
Account No. _________________
Project No. ___________________
WF No. ______________________
A RESOLUTION OF THE CITY COMMISSION OF THE CITY OF LEESBURG, ESTABLISHING A PLAN TO RESTORE CASH RESERVES IN THE GENERAL FUND; AND PROVIDING AN EFFECTIVE DATE.
WHEREAS, the City of Leesburg on August 13, 2007 made substantive changes to the Fund Balance Policy (now known as the Cash Reserve Policy), the Transfer Policy, and the Special Transfer Policy; and
WHEREAS, these changes clarified the way in which reserves are calculated, and strengthened the creditworthiness of the utilities by removing certain loopholes that could result in insufficient liquidity; and
WHEREAS, the changes were well-received by Wall Street analysts, which contributed to Leesburg’s good bond ratings, lower bond insurance costs, and lower interest rates on the 2007 bonds; and
WHEREAS, in 2007 City staff recognized that the presence of certain restricted revenues within the General Fund obscured the actual liquidity of the fund; and
WHEREAS, because of this, one could believe that usable residual equity existed within the General Fund that was actually restricted to a specific use; and
WHEREAS, the City determined that the restricted revenues should be segregated into their own funds and sought the opinion of its auditor, Purvis Gray, who concurred that the action was appropriate; and
WHEREAS, the City subsequently removed $1,116,588 from the General Fund and placed it in separate restricted revenue funds; and
WHEREAS, the expected result of this move is the reduction of liquidity in the General Fund, making it non-compliant with the new Cash Reserve Policy by an estimated $1.05M (unaudited estimate); and
WHEREAS, this reveals the need to add significant cash reserves to the General Fund in order to achieve compliance and ensure adequate funds are available in the event of emergency; and
WHEREAS, the new Cash Reserve Policy, Section 2-231, requires that a plan be developed to restore the required minimum cash balances; and
WHEREAS, the City has identified the steps necessary to ensure compliance with the Cash Reserve Policy;
THEREFORE, BE IT RESOLVED BY THE CITY COMMISSION OF THE CITY OF LEESBURG, FLORIDA:
THAT the plan to restore compliance with the Cash Reserve Policy shall be as follows:
1. Liquidate Assets. The present deficiency is self-created and hopefully a one-time occurrence. Thus, a quick injection of cash should solve the problem, provided the City does not deficit-spend and is otherwise a good steward of its annual budget. The City’s most readily available asset is its inventory of land along C.R. 470. The City has over 3,300 acres that are used primarily in wastewater treatment, residuals disposal, and sprayfield applications. Some of the land has been acquired with grants for park space, and is restricted in its use. Other lands are reserved for the City’s Lake Denham Commerce Park. There is land along the south side of C.R. 470 that, with the development of City reuse water, could be converted from sprayfields to industrial use. The sale of 75 acres of this land could generate between $3.5M and $5.5M. After repayment to the Wastewater Fund for the original acquisition ($210,000) plus interest, more than enough funds would be available to restore the General Fund cash reserves. Beyond the reserve deficit, surplus funds could be used for other Commission priorities. The sale may also have the ancillary benefit of jump-starting development of the 470 corridor and bringing much-needed jobs to our area. This action can be completed within the 2007-2008 Fiscal Year.
2. Increase Revenues. Many of Leesburg’s services are rendered at a deficit to the General Fund. It is important that these services are reviewed periodically to determine if appropriate fees are being charged. Though many of the services can never be self-sustaining, it is imperative that they do not generate an ever-increasing burden on General Fund resources. Parks and Recreation and the Planning Department both have user fees that must be reviewed and revised periodically to keep up with costs. The Fire Department provides some services that could generate revenue. As of the date of this memo, the Commission has reviewed all of these proposed fees and staff will be coming back with ordinances to adopt the proposed changes. This action will be completed within the 2007-2008 Fiscal Year; benefits will be on-going.
3. Close Monitoring of Revenues and Expenditures/Reduction in Service If Necessary. Monthly monitoring of revenues and expenditures should allow for corrective action if there are variances from the adopted budget. The City Commission must be prepared to eliminate potential year-end deficits through cost cutting, which could mean service reductions. This action will be continuous.
THAT this resolution shall become effective immediately.
PASSED AND ADOPTED by the City Commission of the City of Leesburg, Florida, at a regular meeting held the _14th____ day of _January________ 2008.