RESERVES AND CONTINGENCIES purpose FLOW OF FUND of section BALANCE & RESERVES This section is intended to introduce and explain the concepts and applications of the County’s reserves and contingencies. Prior Year Total Sources Current Carry-forward Expenditures Current Total Uses Reserves & TYPES OF RESERVES Revenue Contingencies & CONTINGENCIES Actual Net Total Sources Over / (Under) For every conceived risk or possible event, a reserve or Total Uses contingency could be established. To help manage foreseeable Year 1 risk, the County has established the following Reserves and Year 2 Contingencies for the 2009/10 budget: Prior Year Total Sources Current Carry-forward Expenditures Set-asides: ¾ Department Operational Current Reserves & Total Uses ¾ Activity based personnel Revenue Contingencies ¾ Contingency (Board of Supervisors) Reserves: Net Total ¾ Cash Flows Sources Over / (Under) Total ¾ Emergency Reserves (Rainy day fund) Uses ¾ Anticipated reversions Year 2 Year 3 Only the Board of Supervisors has authority to authorize the use Prior Year of these accounts. Upon the Board’s approval for use of one of Carry-forward these accounts, budget authority is transferred to the appropriate department, function or program. The above flow charts illustrate how prior year’s fund balance No expenditures are directly recorded to these accounts. flows into the subsequent year. General rule use the prior year’s balance to first meet the current year’s reserves requirement and then, if used for expenditures, only one-time expenditures by nature. F-1 RESERVES AND CONTINGENCIES CONTINGENCIES & SET-ASIDES Department operational: This set-aside is detailed in the Non- Activity based: This set-aside is established to hold (freeze) Departmental pages in the Department Budgets section. These certain County positions that’s primary duty’s workload have set-asides are for a specific designation of budget authority for a decreased to the extent that the position is less critical compared to particular purpose that is set-aside and encumbered until such other County needs. These positions are not abolished since this time the anticipated expenditure materializes to the degree that reduction in workload is anticipated to be a temporary low. necessitates a budget transfer to harmonize continuity of fluent operations. Any unused portions of this set-aside rolls to fund When a position is set-aside it is done so with attached revenue balance at fiscal year end and is available for appropriation the that is estimated to be generated once it’s workload (performance following fiscal year. and service levels) are back to their appropriate levels. Contingency: This contingency was established using current These positions are held until the primary function experiences the revenues and may be used for unforeseen purposes (continuing designated workload, as well as the appropriate revenue collection or one-time) that if not doing so would result in detrimental or level to support the position’s reinstatement to the department. undesirable outcomes to the organization. This concept allows for the reallocation of resources to other County areas where demands are increasing from areas where certain performance and service levels are declining. It also allows Set-Asides / Contingencies by Category (in Thousands) for a quicker reaction, during the fiscal year, to increase service Current year levels when demands for these positions increase by having Prior % Change funding for it already budgeted. Reserve for: Year Amount (reduction) Department operational $ 1,312 711 (46%) The alternative is to abolish positions as appropriate. But then if Contingency 396 300 (24%) they are needed to be added mid-year, the General fund Activity based 157 227 45% contingency budget authority would need to temporarily fund them. Total $ 1,865 1,238 (34%) Four positions have been included this year versus three in the prior year. This accounts for the significant increase in the set- aside. F-2 RESERVES AND CONTINGENCIES RESERVES Establishing and maintaining reserves this fiscal year with Recommended Practice: A strong cash and fund balance can be quantified, but it should also be qualified. Recommended practices primarily prior years fund balances will not only build the foundation for fiscal stability, but will also help avoid the use of set the percentage of an entity’s budgets dedicated to reserves as ranging from no less than 5% to 15%. A good cash and fund subsequent year’s current revenues to build them back up to necessary levels. balance should identify by what requirements will arise in the following fiscal year. Generally applying the 5% to 15% range to Reserve—For Cash Flow: This reserve represents the minimum the subsequent year’s needs rather than only the current year’s budget is considered good standing. cash balance necessary to continue the County’s operations without the need to short-term borrow. Emergency Reserve—Rainy Day Fund: Though it doesn’t rain too often or too much in Yuma County, maintaining a rainy day fund is vital to its financial health in future years. It provides for revenue shortfalls to allow for softer landings if the shortfalls do not correct the next fiscal year. The possibility of natural Reserves by Category (in Millions) disasters, public safety emergencies, up-front economic Percentage of Budget: opportunities, or slumping economic conditions necessitates the Current need for adequate reserve funds in the current fiscal year and the Reserve for: Amount Year Prior Year ability to carry onto the next fiscal year. Cash Flows $ 8.2 11.23% 11.40% Emergency 3.6 4.97% 5.00% Reserve—For Reversion (Vacancy Factor): The County Reversion (Vacancy factor) 2.1 2.88% 3.10% budgets for all vacant positions at the minimum range with full Total $ 13.9 19.08% 19.50% benefits. The County does not directly reduce a department’s budget based on historical vacancy factors. This reserve acknowledges that the County does have a level of vacancies carried during the year that will revert to fund balance at fiscal year end. This amount is calculated for the fund taken as a whole. F-3 (This page intentionally left blank) F-4 DEBT SERVICE debt financing a management capital project The County uses several financing instruments to fund its capital needs. Each method of leveraging has specific and secure Capital sources identified and used for the debts repayment. Improvement Budget Planning & The County employs the early recognition option for payments of Financing principal and interest when due early in the subsequent year for Options financial reporting and budget purposes to ensure resources are both available and measurable when payments are due. Capital Needs Improvement Assessment for Program Pay Debt Capital Modification as Service and Improvement Appropriate Continuing Spending financing Disclosure instruments Capital Collect from Debt Capacity Improvement Re-payment and Leverage There are numerous financing instruments available to counties Program Revenue Instrument in the State of Arizona, including: Monitoring & Source Analysis ¾ General Obligation Bonds Evaluation ¾ Revenue Bonds ¾ Improvement Bonds Capital Budget Issuance of Development & Debt via Best ¾ Special Assessment Bonds & Rural Development Loans Execution of Instrument ¾ Community Facility Districts Project ¾ Certificates of Participation ¾ Lease Purchase The flow chart above illustrates the ground work to initiate a ¾ Capital and Operating Leases routine and comprehensive analysis of the County’s debt ¾ Pay-as-you-go and capacity to provide assurance that the amount of debt issued is ¾ Interfund Borrowing affordable, cost-effective and promotes an appropriate balance A general explanation of all these instruments and details on how between the County’s capital needs and its ability to pay for the County utilizes them is included in this section. them today and through the debts maturity. F-5 DEBT SERVICE Debt limitation Bonded indebtedness of local municipalities is subject to a two- The following tables illustrate the County’s compliance with the tiered constitutional debt limit. (Arizona Constitution, Article 9, constitutional debt limitation. The County has $87 million or Section 8; June 2008) 100% of unused 6% borrowing capacity that does not require voter approval prior to issuing debt; and $217 million or 100% of Under Arizona law, counties, cities, towns, school districts and 15% borrowing capacity available that requires prior voter other municipalities may issue general obligation bonds up to 6% approval. of the jurisdiction’s net secondary assessed valuation without voter approval. Voter approval is required before issuing over Yuma County the 6%. Constitutional General Obligation Bonding Capacity With voter approval cities and towns may issue general obligation Without Prior Voter Approval bonds up to 20% of the jurisdiction’s net secondary assessed 2008/09 Secondary Assessed Valuation $1,449,677,959 valuation for supplying the city or town with water, artificial light or 6% Constitutional Limitation 86,980,678 sewers when this infrastructure will be owned and operated by Less: General Obligation Bonded Debt Outstanding - the city or town; and for the acquisition and development of open Plus: GO Fund Balance Restricted for Repayment - space preserves, parks, playgrounds and recreation facilities, Unused 6% Limitation Borrowing Capacity $ 86,980,678 public safety, law enforcement, fire and emergency services facilities, and streets and transportation facilities. With voter