Financial Policies

The purpose of this section is to present the policies the City follows in managing its financial, operational, and budgetary affairs. These are general policy statements representing long-standing principles, traditions, and practices that have guided the City in maintaining its financial stability.

I. General Policies

1.  The City organization will carry out the City Council's goals, objectives, and policies through a service delivery system financed through the Operating and Capital Budgets.

2.  The relationship between the Operating and Capital Budgets will be explicitly recognized and incorporated into the budget process. Funding for these budgets shall be sufficient to provide municipal operating services and maintenance or enhancement of fixed assets needed to support public demand for City services.

3.  The City will take positive steps to improve the productivity of its programs and employees, and will seek ways to eliminate duplicative functions within the city government and between the City of Lake Oswego and other public agencies in the community. Specifically, intensive reviews of the efficiency and effectiveness of certain City services will be periodically undertaken. A reporting mechanism highlighting the service efforts and accomplishments of the City's major services will also be developed.

4.  Whenever feasible, government activities will be considered enterprises if so doing will increase efficiency of service delivery or recover the cost of providing the service from the benefiting entity by user fees.

5.  Adequate reserves will be maintained for all known liabilities, including employee leave balances.

6.  Efforts will be coordinated with other governmental agencies to achieve common policy objectives, share the cost of providing governmental services on an equitable basis, and support favorable legislation at the state and federal level.

7.  We will seek out, apply for, and effectively administer federal, state, and foundation grants-in-aid that address the City's current priorities and policy objectives.

8.  Initiate, encourage and participate in economic development efforts to create job opportunities and strengthen the local economy.

9.  Ensure that the Public Employees' Retirement Fund (PERS) is adequately funded and operated for the exclusive benefit of the participants and their beneficiaries.

II. Revenue Policies

Design, maintain, and administer a revenue system that will assure a reliable, equitable, diversified, and sufficient revenue stream to support desired City services.

1.  The City will try to maintain a diversified and stable revenue system to shelter it from short-run fluctuations in any one source.

2.  The City will follow an aggressive policy of collecting revenues.

3.  The City will establish all user charges fees at a level related to the full costs (operating, direct, indirect and capital) of providing the service. The City will review fees/charges periodically.

4.  The City will consider market rates and charges levied by other municipalities of similar size for like services in establishing rates, fees and charges.

5.  Enterprise and Internal Service operations will be self-supporting.

III. Expenditure Policies

Identify priority services, establish appropriate service levels, and administer the expenditure of available resources to assure fiscal stability and the effective and efficient delivery of services.

1.  The City shall operate on a current funding basis. Expenditures shall be budgeted and controlled so as not to exceed current revenues plus the planned use of fund balance accumulated through prior years.

2.  The City shall take immediate corrective actions if at any time during the fiscal year expenditure and revenue re-estimates are such that an operating deficit is projected at year-end. Corrective actions can include a hiring freeze, expenditure reductions, fee increases, or use of contingencies. Expenditure deferrals into the following fiscal year, short-term loans, or use of one-time revenue sources shall be avoided.

3.  The City Manager shall undertake periodic staff and third-party reviews of City programs for both efficiency and effectiveness. Privatization and contracting with other governmental agencies will be evaluated as alternatives to service delivery. Programs that are determined to be inefficient and/or ineffective shall be reduced in scope or eliminated.

4.  The City shall make every effort to maximize any discounts offered by creditors/vendors. Staff shall also use competitive bidding to attain the best possible price on goods and services.

IV. Fund Balance/Contingencies Policies

Maintain the reserves, contingencies, and ending fund balances of the various operating funds at levels sufficient to protect the City's credit as well as its financial position from emergencies.

The following summarizes the City's Finance Policy No.1 in reserve levels and ending fund balances:

General Fund:

- Contingency, 14% of operations, plus an amount for risk management
- Ending fund balance, 16% of operations plus the "net" balance in the Building Department

Golf & Tennis Funds:

- Contingency, 10% of operations
- Ending fund balance, sufficient for a pay-as-you-go for CIP

Bonded Debt Service Fund:

- Ending fund balance, 100% for dry period

Note: No more than 25% of the general funds’ reserves may be held in land at any one-time.

FUND CONTINGENCIES

The Golf, Tennis, Street, Water, Wastewater, LO-Tigard Water Supply Partnership and Surface Water funds shall each maintain general contingencies equal to at least 10% of their operational requirements.

The Systems Development Charges fund shall maintain general contingencies equal to the net balance of the fund.

The Engineering Fund shall maintain general contingencies equal to at least 5% of operations.

The Maintenance Services & Motor Pool fund shall maintain general contingencies of at least 3% of operations.

FUND BALANCE

Order of spending fund balance:  the City considers when both restricted and unrestricted fund balance is available for use, the City is to use restricted fund balance first, and then unrestricted fund balance as needed.  When unrestricted fund balance is spent, the City will consider that committed amounts will be reduced first, followed by assigned amounts, and then unassigned amounts last.

V. Capital Improvement Plan (CIP) Policies

Annually review and monitor the state of the City's capital equipment and infrastructure, setting priorities for its replacement and renovation based on needs, funding alternatives, and availability of resources.

1.  The City will develop a multi-year plan for capital improvements, update it annually and make all capital improvements in accordance with the plan.

2.  The City will maintain its physical assets at a level adequate to protect the City's capital investment and to minimize future maintenance and replacement costs. The budget will provide for adequate maintenance and orderly replacement of capital assets from current revenues where possible.

3.  Capital projects will conform to the following criteria:

A. will be part of an approved City plan;

B. will be part of an adopted maintenance/replacement schedule;

C. will minimize operating costs; and

D. will be selected according to the established Capital Improvement Plan.

4.  The capital budget process works in conjunction with the regular operating budget process. CIP projects are flagged as funded or unfunded depending on whether or not the forecasted operating budget can support or fund the project. All funded CIP projects are included in the operating budget for the current budget year.

VI. Capital Asset Management Policies

The capital assets of the City of Lake Oswego are property owned in common by the citizens of our community.

1.  These community assets will not be degraded, given away, or allowed to deteriorate except by action of the Council.

2.  Funding new long-term capital assets of the city will be the responsibility of the community as a whole and should be funded through general obligation bonds, SDCs, proportionate equity asset shares, grants and gifts, or volunteer contributions when appropriate.

3.  New private development in the city that requires increased capacity or places increased demand on the community assets must purchase an equity asset share. This share is based on the development's proportionate share of the current replacement value of the existing assets required by the development, including capacity expansion required to serve the new development.

4.  To the extent allowed by law, system development charges will be designed to recapture from new private development the full cost of community assets in place at the time of the development and the necessary expansion of those systems caused by increased demand on those assets.

5.  The capitalization threshold used in determining if a given asset qualifies for capitalization is $10,000 per item.

6.  The Finance Department shall organize a physical count/inspection of all capital assets as of each fiscal year end, June 30.

7.  Adequate insurance shall be maintained on all capital assets consistent with the results of the annual physical count/inspection.

8.  GASB 34:  The Government Accounting Standards Board has required local governments to report infrastructure and depreciation on all capital assets. Prospective implementation of these requirements was completed with fiscal year ended June 30, 2003. Retroactive infrastructure reporting for major assets acquired after July 1, 1980 was also completed with fiscal year ended June 30, 2003.

VII. Debt Policies

Establish guidelines for debt financing that will provide needed capital equipment and infrastructure improvements while minimizing the impact of debt payments on current revenues.

1.  The City will confine long-term borrowing to capital improvements.

2.  The City will follow a policy of full disclosure on every financial report and bond prospectus.

3.  The City will strive to maintain its high bond rating, currently AAA / Aaa, and will receive credit ratings on all its bond issues.

4.  General obligation debt will not be used for self-supporting enterprise activity.

5.  The City shall ensure that its debt margins are within the 3% TCV (true cash value) limitation as set forth in ORS 287.004.

6.  The City will use voter-approved general obligation debt to fund general-purpose public improvements that cannot be financed from current revenues.

VIII. Investment Policies

[NOTE: The City submitted its investment policy to the State of Oregon's Short-Term Fund Board (OTSF) for their review and comments relating to statutory compliance, appropriateness, completeness, and legality. On November 24, 2000, the City received a favorable review from Jim Yasutome, Senior Investment Officer with the OTSF. The OTSF letter said, in part: "In reference to your investment policy submitted to the Oregon Short-Term Fund Board for review and comment ... the City has incorporated all of the Treasury staff suggestions and the City has an excellent policy."]

Invest the City's operating cash to ensure its legality, safety, provide for necessary liquidity, avoid imprudent risk, and optimize yield. Legality, followed by preservation of principal, is always the first objective. Rate-of-return is last.

1.  Pursuant to the provisions of ORS 294.035 and 294.125, the City Manager is authorized to invest any surplus funds to include all bond and sinking funds into allowable investments at current market prices as described in ORS 294.035, subject to any limitations imposed by law.

The investment objectives are:

a. Compliance with all applicable statutes and legal provisions.

b. Preservation of capital and the protection of principal.

c. Maintenance of sufficient liquidity to meet operating requirements.

d. Avoidance of imprudent credit, market, or speculative risk.

e. Attainment of a market rate-of-return throughout all economic and fiscal cycles.

2.  Safekeeping shall be consistent with modern investment, banking, and commercial practices and may include physical possession, book entry, and automated recordation.

3.  Except for funds requiring special handling (i.e. bond proceeds subject to arbitrage), investments beyond 18 months require the express approval of the City Council.

4.  Diversification of the City's investment portfolio will be consistent with the percent limitations under ORS 294.035 (i.e. 5% and 35% maximums for corporate indebtedness) to include certain credit rating minimums.

IX. Accounting, Auditing & Financial Reporting Policies

Comply with prevailing federal, state, and local statutes and regulations. Conform to generally accepted accounting principles as promulgated by the Governmental Accounting Standards Board (GASB), the American Institute of Certified Public Accountants (AICPA), and the Government Finance Officers Association (GFOA).

1.  Prepare and present regular reports that analyze, evaluate, and forecast the City's financial performance and economic conditions.

2.  With available resources, seek out and employ the assistance of qualified financial advisors and consultants in the management and administration of the City's financial functions.

3.  An independent audit will be performed annually.