Rochester Hills adopts fund balance policy

Rochester Hills City Council on Monday, June 4, adopted an updated fund balance reserve policy intended to increase transparency and maintain the health of the city's fund balance reserves into the future.

Rochester Hills Chief Financial Officer Joe Snyder said the city's Strategic Planning and Technical Review Committee met in February and May of 2018 to review and discuss the policy, which was previously updated in 2009. Under the existing policy, the city must maintain a minimum of 20 percent of operating revenues for governmental funds, including the general fund, special revenue funds and capital improvement funds.

Snyder said the new policy was developed by researching best practices in fund balance policies per the Governmental Finance Officers Association and examining examples from communities around the country, having communications and discussions with the city's auditor, reviewing best practices in context with the city of Rochester Hills' unique financial structure and tailoring the most relevant of best practices into a comprehensive policy intended to serve the city in the future.

Under the new policy, the city must maintain a range of reserves in various city funds, including the city's general fund and special capital and operating funds. Those reserves include maintaining 70 to 80 percent of annual operating expenditures in the city's general fund; and 20 to 25 percent of annual expenditures in the city's local street fund, fire operating fund, special police fund, pathway maintenance fund and green space operating fund.

Fund balance minimum levels must be at least 25 percent of annual operating expenditures in the city's major road fund, tree fund and water resources fund.

Under the new policy, funding in excess of 80 percent of annual expenditures in the general fund shall be transferred to the city's capital improvement fund to provide a funding source for future citywide capital improvements. Usage of capital improvement fund reserves is limited to no more than 50 percent of the available fund balance reserves in the capital improvement fund for one particular year. City council will be authorized to permit the usage over 50 percent pending an explanation of circumstances.

The policy also allows the use of governmental fund balance reserves above the prescribed minimums, as directed by city council. If governmental fund balance reserves were to fall below the prescribed target or minimum level, the city's administration shall present a financial plan to address the deficit within 90 days, and the reserves must be restored within three years. The policy is to be reviewed by administration and the strategic planning and policy technical review committee on an annual basis.

Council unanimously approved the policy with councilman Dale Hetrick absent.

Snyder said capital improvement fund reserves above the minimum amount would be allocated based on capital improvement plan rankings, with each project ranked to provide a relative worth or impact to the city. The policy, he said, would allow for unplanned capital improvements that arise to come from a capital improvement fund that can be better monitored, rather than the city's general fund, which serves as an operating fund.

"It provides flexibility for the city and better context for decisions," he said.