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HomeMy WebLinkAboutFIN 2026-04-13 Item 1A - Resolutions - Fund Balance Policy Adoption / Financial Policies AmendmentCity of Tukwila Thomas McLeod, Mayor Marty Wine, City Administrator AGENDA BILL ITEM NO. 1.A. Agenda Item Policies Sponsor Tony Cullerton, Deputy Finance Director Resolutions to Adopt a Fund Balance Policy and Update Financial Legislative History April 13, 2026 Finance & Governance Committee April 27, 2026 Committee of the Whole May 4, 2026 Regular Meeting Recommended Motion ❑ Discussion Only ❑x Action Requested MOVE TO approve resolutions to adopt a Fund Balance Policy and update the existing Financial Policies. EXECUTIVE SUMMARY Staff is recommending a new Fund Balance Policy to clearly explain how the City manages and uses its reserves. This policy builds on what we already do and brings it in line with current standards and best practices. It will make our approach easier to understand and more consistent over time. This Fund Balance Policy will modify the Reserves portion of the Financial Policies which will be subsequently updated. Staff is asking for Council approval to move this item to the April 27 Committee of the Whole meeting for further discussion. DISCUSSION The City of Tukwila has a strong history of managing its finances responsibly and planning for the long term. Its Financial Policies, adopted through Resolution 2014, provide guidance on how the City handles its budget, revenues, expenses, and reserves. These policies also make it clear that the City should maintain enough reserves to keep services running, manage financial risks, and handle unexpected situations. While these policies include some guidance on reserves, that guidance is fairly limited and part of a larger set of financial policies. Over time, the City has seen the need for clearer and more detailed direction on how fund balance should be managed. Creating a separate Fund Balance Policy helps address this by clearly defining reserve targets, fund balance categories, and when reserves can be used. The proposed Fund Balance Policy builds on the existing guidance and aligns with GASB Statement No. 54 and widely accepted public finance practices. It also sets clearer expectations for maintaining reserves, using one-time funds, and increasing balances when needed. Overall, this policy will make the City's financial practices easier to understand, more consistent, and better positioned for long-term stability. ATTACHMENTS • Draft Resolution — Adopting Fund Balance Policy • Draft Resolution — Updating Financial Policies 2 DRAFT A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF TUKWILA, WASHINGTON, ADOPTING THE CITY OF TUKWILA FUND BALANCE POLICY WHEREAS, the City Council of the City of Tukwila is committed to maintaining sound financial management practices and ensuring the long-term fiscal stability of the City through responsible stewardship of public resources; and WHEREAS, the City has previously established reserve guidance within its Financial Policies, adopted as Resolution No. 2096 on March 14, 2024, including Section 9, Reserves, which outlined minimum reserve levels and the treatment of certain reserve balances; and WHEREAS, the City Council desires to update and expand these reserve provisions in order to provide a clearer and more comprehensive framework governing fund balance classifications, reserve levels, and the appropriate use of financial reserves; and WHEREAS, the Fund Balance Policy establishes guidelines to support financial resiliency, maintain adequate reserves for economic uncertainty and emergency conditions, and ensure consistent and transparent financial decision making. NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF TUKWILA, WASHINGTON, HEREBY RESOLVES AS FOLLOWS: Section 1. Findings Incorporated and Adoption of the Fund Balance Policy. The above "whereas" recitals are adopted as findings in support of this resolution, and the City of Tukwila Fund Balance Policy attached hereto as Exhibit A is adopted. PASSED BY THE CITY COUNCIL OF THE CITY OF TUKWILA, WASHINGTON, at a Regular Meeting thereof this day of , 2026. ATTEST/AUTHENTICATED: 2026 Legislation: Fund Balance Policy Version: 04/06/2026 Staff: T. Cullerton Page 1 of 2 3 Andy Youn-Barnett, CMC, City Clerk Armen Papyan, Council President APPROVED AS TO FORM BY: Filed with the City Clerk: Passed by the City Council: Resolution Number: Office of the City Attorney Attachment: Exhibit A— City of Tukwila Fund Balance Policy 2026 Legislation: Fund Balance Policy Version: 04/06/2026 Staff: T. Cullerton Page 2 of 2 4 CITY OF TUKWILA FUND BALANCE POLICY Purpose The purpose of the Fund Balance Policy is to establish guidelines for the classification and use of fund balance in accordance with Generally Accepted Accounting Principles (GAAP) and the requirements of the Governmental Accounting Standards Board (GASB) Statement No. 54. This policy is designed to ensure long-term financial stability and sound fiscal management for the City of Tukwila by maintaining adequate fund balance levels and providing a framework for appropriate use. Scope This policy applies to all City funds, where applicable, including the General Fund, Special Revenue Funds, Internal Service Funds, and Enterprise Funds. While this policy is centered on the General Fund, other funds shall maintain balances sufficient to meet their operational needs, consistent with the purpose of each fund. Fund Balance Policy Page 1 of 7 Version: 02/17/2026 5 List of Funds Fund # Funds Type Applicable 000 General Fund General Fund Yes 101 Hotel/Motel Special Revenue Yes 103 Residential Street Special Revenue Yes 104 Bridges and Arterial Street Special Revenue Yes 105 Contingency Special Revenue No 109 Drug Seizure Special Revenue No 200 LTGO Debt Svs Debt Svs No 213 UTGO Bonds Debt Svs No 206 LID Guaranty Debt Svs No 233 2013 LID Debt Svs No 301 Land Acquisition, Rec & Parks Dev Capital Projects No 303 General Governmental Improvements Capital Projects No 304 Fire Improvements Capital Projects No 305 Public Safety Plan Capital Projects No 306 City Facilities Capital Projects No 401 Water Enterprise Yes 402 Sewer Enterprise Yes 411 Foster Golf Course Enterprise Yes 412 Surface Water Enterprise Yes 501 Equipment Rental Internal Svs Yes 502 Self- Insurance Healthcare Plan Fund Internal Svs Yes 503 Insurance - LEOFF 1 Internal Svs Yes 611 Firemen's Pension Fiduciary No 641 NoncityCustodial Fiduciary No Funds Where the Policy Does Not Apply The Fund Balance Policy is not applicable to the City's Contingency Fund, Drug Seizure Fund (100-Series), Debt Service Funds (200-level), Capital Project Funds (300-level), and certain Restricted/Fiduciary Funds (600-level). These funds are excluded because their resources are restricted, externally governed, or tied to fixed financial obligations, such as debt schedules or capital project timelines, and therefore do not accumulate Fund Balance Policy Version: 02/17/2026 Page 2 of 7 6 discretionary operating reserves for which minimum or maximum fund balance targets would apply. The City's Contingency Fund (Special Revenue Fund 105) The Contingency Fund is excluded because its balance is restricted for declared emergencies or extraordinary events and governed through separate statutory and budgetary authority. Drug Seizure Fund (Special Revenue 109) The Drug Seizure Fund is excluded from the Fund Balance Policy because its revenues are legally restricted for law -enforcement purposes and cannot be used for general governmental operations. The balance in this fund is governed by federal and state asset forfeiture laws and is expended based on allowable uses tied to police activities, training, equipment, or community safety initiatives. Because these resources do not function as discretionary operating reserves and their accumulation is driven by external enforcement activity rather than budgetary planning, establishing minimum or maximum fund balance targets is not appropriate. Debt Service Funds (200-Series) Debt Service Funds are legally restricted for the payment of principal and interest on outstanding debt. These funds do not retain ongoing operating reserves and are not intended to accumulate fund balance beyond required annual debt service payments or bond covenant provisions. Minimum or maximum fund balance targets are not relevant for these funds. Capital Project Funds (300-Series) Capital Project Funds account for the financing and construction of capital improvements and are typically funded through restricted revenues or bond proceeds. Fund balances fluctuate based on project timing and do not operate on a cyclical or recurring basis. Because resources in these funds are either restricted or committed for specific capital purposes, they are not intended to support general operating activities and therefore fall outside the scope of fund balance reserve requirements. Fiduciary Funds(600-Series) Fiduciary Funds accumulate funds that are legally restricted or held in a trustee or custodial capacity. These resources cannot be used for general governmental purposes, and their balances are governed by external requirements, or fiduciary standards rather than reserve policy standards. Applying minimum or maximum fund balance targets to these funds would be inappropriate. Fund Balance Policy Page 3 of 7 Version: 02/17/2026 7 Fund Balance Classifications In accordance with GASB Statement No. 54, fund balances will be reported using the following classifications: • Nonspendable Fund Balance — Amounts not in spendable form (e.g., inventory, prepaid items) or legally required to remain intact. • Restricted Fund Balance —Amounts constrained for specific purposes by external parties, constitutional provisions, or enabling legislation, or imposed by law. • Committed Fund Balance — Amounts constrained for specific purposes by formal action of the City Council, the City's highest level of decision -making authority. Such commitments can only be changed or removed by the same type of formal action. • Assigned Fund Balance — Amounts intended to be used for specific purposes but not formally committed. The authority to assign fund balance is delegated by the City Council to the City Manager and/or Finance Director. Assignments are typically made during the budget process or through administrative action consistent with Council direction. • Unassigned Fund Balance — Represents the residual classification for the General Fund and includes all amounts not contained in other classifications. The General Fund is the only fund that may report a positive unassigned fund balance. Fund balance policy targets are measured against end -of -year balances and are not tied to specific fund balance classifications. Priority of Use When an expenditure is incurred for purposes for which both restricted and unrestricted fund balance is available, the City shall apply resources in the following order unless it is determined that it is in the City's best interest to modify the order on a case -by -case basis: 1. Restricted Fund Balance 2. Committed Fund Balance 3. Assigned Fund Balance 4. Unassigned Fund Balance This order of spending ensures that externally imposed restrictions are honored first, followed by Council -directed commitments, management assignments, and finally general resources. Fund Balance Policy Page 4 of 7 Version: 02/17/2026 8 Minimum Fund Balance Requirement At the close of each fiscal year, the City shall maintain an Unassigned Fund Balance in the General Fund equal to no less than 18% of prior year General Fund operating expenditures. This level is consistent with Government Finance Officers Association (GFOA) best practice guidance and is intended to provide adequate resources for cash flow needs, temporary revenue shortfalls, emergency expenditures, and economic downturns or other unforeseen events such as natural disasters. Unassigned Fund Balance may only be used for one-time purposes that do not create ongoing costs or for fiscal emergencies that compromise the City's ability to maintain essential services. A fiscal emergency may include, but is not limited to, catastrophic natural events, a sudden and significant loss of revenue, or other events posing material financial risk to the City. Any use of fund balance that reduces it below the minimum target must be approved by the City Council and include a replenishment plan to restore balances within three fiscal years, with semi-annual progress reporting. Under no circumstances shall Unassigned Fund Balance fall below 10% of prior year's General Fund operating expenditures without a formal Council emergency declaration. Maximum Fund Balance Threshold The City shall maintain an Unassigned Fund Balance in the General Fund not to exceed 25% of prior year's General Fund operating expenditures. The maximum threshold is intended to prevent the accumulation of reserves beyond what is necessary for prudent fiscal management while ensuring financial resources remain actively supporting government services and priorities. If balances exceed the maximum target, the excess should be designated for one-time strategic purposes, unless otherwise identified for a specific use, such as capital improvements, asset replacement, early retirement of outstanding debt, or other non- recurring expenditures. For purposes of calculating minimum and maximum fund balance targets, "operating expenditures" include all General Fund expenditures related to ongoing governmental operations, but exclude capital outlays, transfers to other funds, and debt service expenditures. This ensures that fund balance targets reflect normal operating activities and are not artificially impacted by one-time or non -operating transactions. Use of One -Time Revenues One-time or non -recurring revenues —such as year-end operating surpluses, proceeds from asset sales, legal settlements, or other non -operating revenues shall be used for one-time purposes, including capital investment, technology upgrades, debt reduction, enhancement of reserves, or initial funding for new programs expected to become self- sustaining. One-time revenues shall not be used to support ongoing operating expenditures. Use of these resources shall be aligned with the City's long-term financial planning objectives and communicated as part of the annual budget process. Fund Balance Policy Page 5 of 7 Version: 02/17/2026 9 Applicable Special Revenue Funds Applicable Special Revenue Funds include Hotel/Motel (101), Residential Streets (103), and Bridges and Arterial Streets (104). These funds must maintain positive cash flow and sufficient balances for ongoing operations but are not subject to minimum or maximum fund balance requirements. Proprietary Fund Reserve Treatment (400 & 500-Series) For Proprietary Funds (Enterprise and Internal Service Funds), reserve targets are expressed in terms of Net Position rather than Fund Balance. Because Proprietary Funds are operated in a business -like manner, reserve levels may be established based on factors such as operating expenses, system replacement and renewal needs, and debt service obligations. Reserve levels are intended to support rate stability, ensure the replacement of capital assets, and maintain compliance with applicable legal and regulatory requirements. Replenishment of Fund Balance In the event that the Unassigned Fund Balance is drawn down below the 18% threshold, the City shall develop a restoration plan to rebuild the balance within a reasonable period, not to exceed three fiscal years. Options for replenishment may include: • Expenditure reductions • Revenue enhancements • Collection of one-time revenues The General Fund reserve target is intended to serve as the City's primary fiscal stabilization mechanism for managing revenue volatility and unforeseen financial events. Natural Disasters In the event of a natural disaster, such as an earthquake, flood, windstorm, or other catastrophic event, the City may utilize unassigned fund balance to ensure continuity of essential government operations, protect public health and safety, and expedite recovery efforts. Expenditures may include, but are not limited to, emergency response services, temporary facilities, infrastructure repairs, and other urgent needs directly attributable to the disaster. Use of fund balance for this purpose must be authorized by the City Council and will include a replenishment plan to restore balances to policy levels. The City will also actively pursue available state and federal disaster relief funds, insurance recoveries, and other external resources to minimize reliance on fund balance. Emergency Declaration For the City to use fund balance in response to a natural disaster or similar event, an "emergency" must first be formally declared. An emergency exists when conditions threaten public health or safety, essential government services, or critical infrastructure, and immediate action is needed to protect the community. The declaration may be made by the Mayor or City Council. An emergency declaration provides the basis for accessing Fund Balance Policy Page 6 of 7 Version: 02/17/2026 10 fund balance, outlines the scope of response activities, and authorizes temporary adjustments to normal spending or operational procedures as allowed by law. Capital Reserve Policy The City may establish and maintain reserves within the Proprietary Funds, or other applicable funds to provide for capital replacement, infrastructure improvements, and technology upgrades. These reserves are intended to: • Ensure funding is available for major asset replacement without creating sudden financial stress on the operating budget. • Support the City's long-term capital improvement program (CIP). • Provide a buffer against unexpected capital needs or cost overruns. Reserves may be funded through annual appropriations, one-time revenues, or excess fund balance above policy minimums. Use of capital reserves shall require notification to the City Council at the next reasonable opportunity and must be consistent with adopted capital planning priorities. Roles and Responsibilities • City Council: Approves fund balance commitments, assignments, and policy changes. • City Manager: Recommends use of fund balance and proposes replenishment strategies. • Finance Director: Monitors fund balance levels, prepares fund balance reports, and advises on compliance with the policy. Monitoring and Reporting Fund balance levels will be monitored throughout the year and reported in the: • Annual Budget Document • Annual Comprehensive Financial Report (ACFR), and mid -year and year-end budget amendment updates to the City Council. Policy Review This policy should be reviewed at least every three years or more frequently, if necessary, due to changes in governmental accounting standards, financial condition, or best practices. Policy Exceptions Any deviations from this policy must be approved by a majority vote of the City Council and should be accompanied by documentation outlining the rationale and any mitigating strategies. Policy Name: Fund Balance Policy Adopted: Last Reviewed: Next Scheduled Review: Fund Balance Policy Page 7 of 7 Version: 02/17/2026 11 DRAFT A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF TUKWILA, WASHINGTON, AMENDING THE CITY OF TUKWILA FINANCIAL POLICIES AT SECTION 9, RESERVES POLICY; AMENDING RESOLUTION NO. 2096 WHEREAS, the City Council of the City of Tukwila is committed to maintaining sound financial management practices and ensuring the long-term fiscal stability of the City through responsible stewardship of public resources; and WHEREAS, on May 20, 2024, the City Council adopted Resolution No. 2096, adopting Financial Policies for the City of Tukwila, which established reserve guidance within Section 9, Reserves; and WHEREAS, the City Council updated and expanded these reserve provisions in order to provide a clearer and more comprehensive framework governing fund balance classifications, reserve levels, and the appropriate use of financial reserves, collectively referred to as the Fund Balance Policy, which were adopted as Resolution No. , on April , 2026; and WHEREAS, the adoption of a formal Fund Balance Policy will replace and supersede certain reserve provisions contained in the City of Tukwila Financial Policies; NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF TUKWILA, WASHINGTON, HEREBY RESOLVES AS FOLLOWS: Section 1. Amending Section 9 of the Financial Policies. The City of Tukwila Financial Policies at Section 9 are hereby amended to remove subsections b, c and e to read as follows: 2026 Legislation: Financial Policies Update Version: 04/06/2026 Staff: T. Cullerton Page 1 of 3 12 Section 9. Reserves (Cross reference: Resolution No. ####) a. Prudent financial management dictates that some portion of funds available to the City be reserved for future use. b. At the close of each fiscal year, the General Fund unassigned balance shall equal or exceed 'I8% and the Continnc y Fund resent ace shall eg ial or exceed 10% of the previous year General Fund revenue, exclusive of significant non operating nonrecurring revenues such as real estate sales or e transfers in from other funds. c. At the close of each fiscal year, the unrestricted balances of the Enterprise Funds shall equal or exceed 20% of the previous year revenue, exclusive of cC�l;ekFe+�12S�su+ re rri ch Zarss reaestate sales transfers in from th oer fi inrls or r� debt proceeds. d h Use or draw down of minimum balances shall occur only upon recommendation of City Administration and approval by City Council through a resolution. Should use or draw down occur, the City Administration shall establish a plan, no later than the end of the fiscal year following the year of decline, to restore the fund balance to the prescribed minimum level. The plan shall be presented to and approved by the City Council. c. A One time Revenue Reserve shall be established and maintained in the Contingency Fund. The One time Revenue Reserve shall be credited annually with 10% of the prior year one time revenues to the extent General Fund surplus for the y or is sufficient to cover the reserve funding. Use of the reserve shall occut only upon recommendation by City Odministration and approval by City Council resolution. f The City shall maintain a reserve in each of its self -insured health care funds in an amount equal to 1.5 times, or 150%, of the actuarially determined IBNR (incurred but not reported) balance. Use of the reserve shall occur only upon recommendation by City Administration and approval by City Council resolution. Section 2. Findings Incorporated and Adoption. The above "whereas" recitals are adopted as findings in support of this resolution, and the City of Tukwila Financial Policies attached hereto as Exhibit A are adopted. [signatures to follow] 2026 Legislation: Financial Policies Update Version: 04/06/2026 Staff: T. Cullerton Page 2 of 3 13 PASSED BY THE CITY COUNCIL OF THE CITY OF TUKWILA, WASHINGTON, at a Regular Meeting thereof this day of , 2026. ATTEST/AUTHENTICATED: Andy Youn-Barnett, CMC, City Clerk Armen Papyan, Council President APPROVED AS TO FORM BY: Filed with the City Clerk: Passed by the City Council: Resolution Number: Office of the City Attorney Attachment: Exhibit A— Updated City of Tukwila Financial Policies 2026 Legislation: Financial Policies Update Version: 04/06/2026 Staff: T. Cullerton Page 3 of 3 14 Financial Policies Section 1. Purpose a. The City of Tukwila is accountable to the public and shall maintain the fiscal integrity of its operating, debt service, and capital budgets while providing an appropriate level of public services within the City's financial capabilities. b. The City's Financial Policies are intended to provide guidelines for the financial planning and internal financial management of the City. Section 2. Budgeting Cross references: TMC Chapter 3.30, Resolution 1951 a. The City of Tukwila shall prepare and adopt a biennial budget in accordance with RCW Chapter 35A.34, and Tukwila Municipal Code (TMC) Chapter 3.30. Fiscal years begin January 1 and end December 31. b. The budget shall be prepared with a priority -based approach that enables resources to be allocated to the programs and services that provide the greatest value to the community. c. The budget must be developed in accordance with the policies and priorities set forth in long-term policy documents including the Equity Policy, Strategic Plan, Comprehensive Plan, City Council and community priorities, and federal and state laws. d. Within each budget cycle, the budget should be structurally balanced, which means that ongoing expenditures shall be provided for by anticipated ongoing revenue and one-time revenue should only be used for one-time expenditures unless explicitly authorized by the City Council. e. The City shall maintain a six -year Capital Improvement Program and update it with each budget cycle to ensure that all costs associated with projects are addressed. f. As part of each biennial budget process, the City shall prepare six -year expenditure and revenue forecasts for the principal operating and capital funds. Revenues will be estimated on a conservative basis. g. The City Council may informally approve mid -year budget amendments by motion prior to the submission of a comprehensive formal budget amendment at the end of the fiscal year. h. The City's employee classification and compensation plan will be maintained in a manner consistent with Council policy, applicable state and federal collective bargaining laws, and valid comparable cities. Section 3. Revenues Cross references: TMC Title 3 a. The City will maintain a diversified and stable revenue system to shelter it from short-term fluctuations. Version: 5/17/2024 Page 1 of 5 15 b. The City shall develop and maintain a Revenue Guide that describes major revenue sources available to the City of Tukwila. c. Revenue sources should be reviewed in off -budget years to account for inflation, to stay in line with market, or to ensure cost recovery at a prescribed level depending on the revenue source. Section 4. Expenditures Cross references: - Purchasing Policy (Resolution No. 2015) - Procurement Card Policy (Resolution No. 1750) - Expense Reimbursement Policy (Resolution No. 1874) a. The City shall maintain expenditure categories according to state statute and administrative regulation known as the State Auditor's Budgeting, Accounting, and Reporting System (BARS). b. Operating expenditures within funds must be supported by the operating revenues generated by that fund. c. Purchasing will be conducted with appropriate internal controls, observe fair and ethical business practices, and use wise and prudent judgement in the expenditure of public funds. Section 5. Grants Cross references: Grant Policy/Procedure in progress a. The City shall, whenever practical and advantageous, pursue grant funding. All potential grants shall be examined carefully for matching requirements, and to determine whether programs must be continued with local resources after grant funds are exhausted. b. Staff shall obtain approval from the appropriate City Council Committee before applying for any grant requiring an unbudgeted or previously unidentified local match, and staff shall obtain City Council approval prior to accepting grant agreements in amounts above the Mayor's signing authority. Section 6. Capital Improvement Program (CIP) a. Transportation improvements will be coordinated with related improvements such as utility, landscaping, sidewalks, etc. b. Whenever feasible, capital improvements shall be coordinated with related improvements of adjacent jurisdictions. c. Capital Improvement Program projects shall, whenever possible, take advantage of grants, loans or other financing external to the City. If the proposed grants or mitigation are either not funded or are reduced, the City Council will reevaluate the respective project on the basis of its value and priority level placement in the Capital Improvement Program. Version: 5/17/2024 16 Page 2 of 5 j. d. General Fund support should not be relied upon for funding capital projects. Grants and/or dedicated and restricted revenue sources should be utilized prior to seeking General Fund support. e. Non -transportation capital projects and improvements should be funded by operating revenues, grants or bonds as determined in the six -year Financial Planning Model. f. Residential streets with safety issues, high traffic volumes, high pedestrian activity and poor roadway conditions will be considered the highest priority projects. g. Residential street designs will follow basic designs for arterials, collectors, and local access streets. Designs to accommodate individual properties shall be avoided. h. Design of connecting streets is strongly encouraged. i. For City -scheduled projects located on residential streets, the City will require the undergrounding of new electrical and communication facilities pursuant to TMC Chapter 11.28. Street and road improvement projects on slopes will include roadside plantings wherever feasible to help mitigate the land used for roadway and sidewalk improvements. k. Donation of the property needed for rights -of -way and easements shall be pursued. I. Latecomer agreements, where appropriate, shall be considered an acceptable means of funding capital projects, improvements and replacements, in whole or in part. m Right-of-way agreements for cable and electrical services should be utilized to discourage excessive wiring throughout the City. n. Current arterial street improvements determined in the six -year CIP may be funded through a Local Improvement District (LID) or financing external to the City. The City may participate using operating revenues, grants or bonds based on health and safety needs or public benefit. The City may participate in the funding by financing the preliminary engineering design and professional service costs associated with planning and creating the LID. o. A majority of property owners on a street may petition the City to set up an LID to pay for residential street improvement projects, sidewalks and undergrounding of utilities. The City will evaluate the possibility of paying for the design, preliminary engineering, construction engineering, and LID formulation. The residents will pay for undergrounding utilities in the street, undergrounding from the street to their residence, the actual construction costs, and any improvements on private property such as rockeries, paved driveways, or roadside plantings. Pursuant to TMC Chapters 3.56 and 3.60, the first 1/4 cent Real Estate Transfer Tax (REET) shall be dedicated to park and open space land acquisition, and the second 1/4 cent shall be used for arterial streets, along with the parking tax, unless the City Council enacts other priorities consistent with state law distribution of REET funds. P. Version: 5/17/2024 Page 3 of 5 17 q. Street and road improvement projects shall be evaluated for the inclusion of features that support the City's Parks, Recreation and Open Space (PROS) Plan and Transportation Element of the Comprehensive plan in order to encourage walking, bicycling, and use of public transit. r. Policies will be reviewed annually and in concert with the adoption of growth management policies to ensure continuity. s. Transportation impact fees shall be collected so that "growth may pay for growth" and growth -caused improvements may be constructed. Section 7. Enterprise Funds a. Utility fund expenditures shall be fully supported by their own rates, fees, and charges and not subsidized by the General Fund. b. Utility rates should be structured to ensure adequate infrastructure development and replacement. c. Each Enterprise Fund shall be reviewed bi-annually to ensure a rate structure adequate to meet its operations, maintenance, and long-term capital requirements. d. Enterprise Fund rate increases shall be small, applied frequently, and staggered to avoid an overly burdensome increase and undue impact in any given year. e. Enterprise Fund rate increases of external agencies will be passed through to the customer. f. Infrastructure improvements such as water reuse should consider conservation of resources such as water and electricity. Section 8. Debt Cross references: Debt Policy (Resolution No. 1840) a. Appropriate management of debt is an important factor in measuring the City's financial performance and condition. Section 9. Reserves Cross references: Fund Balance Policy (Resolution No. a. Prudent financial management dictates that some portion of funds available to the City be reserved for future use. b. At the close of each fiscal year, the General Fund unassigned balance shall equal or exceed 18% and the Contingency Fund reserve balance shall equal or exceed 10% of the previous year General Fund revenue, exclusive of significant non operating non -recurring revenues such a r ,.tate sales or transfers in from other funds. shall equal or exceed 20% of the previous year revenue, exclusive of the effects of GASB Statement 68, as well as significant non operating, non recurring 18 Version: 5/17/2024 Page 4 of 5 d b. Use or draw down of minimum balances shall occur only upon recommendation of City Administration and approval by City Council through a resolution. Should use or draw down occur, the City Administration shall establish a plan, no later than the end of the fiscal year following the year of decline, to restore the fund balance to the prescribed minimum level. The plan shall be presented to and approved by the City Council. c. A Onc timc Rcvcnuc Rcscrvc shall be established and maintained in the Contingency Fund. The One time Revenue Reserve shall be credited annually with 10% of the prior year one-time revenues to the extent General Fund surplus for the year is sufficient to cover the reserve funding. Use of the reserve shall occ Ir only upon recommendation by City administration and approval by City Council resolution. f . The City shall maintain a reserve in each of its self -insured health care funds in an amount equal to 1.5 times, or 150%, of the actuarially determined IBNR (incurred but not reported) balance. Use of the reserve shall occur only upon recommendation by City Administration and approval by City Council resolution. Section 10. Investments (Cross references: TMC 3.28, Resolution No. 1828) a. The City will strive to maximize the return on its investments with the primary objective of preserving capital in accordance with city policy and prudent investment practices. Section 11. Minimum Reporting Requirements a. The Finance Director shall provide a financial status update at least quarterly. b. City Administration shall provide the City Council with financial reports that reflect actual performance in various expenditures and revenues. c. City Administration shall provide the City Council with a quarterly report of all newly -executed and amended contracts, including the amount, responsible department, scope of work, and expiration date. d. Once the annual audit is complete, City Administration shall provide a report to the City Council showing compliance with the Financial Reserve Policy. Version: 5/17/2024 Page 5 of 5 19