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Budget and Financial Planning

Phone: 913-715-0605

111 S. Cherry St., Suite 2300, Olathe, KS 66061

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Financial Policies: Section 110 - Reserves

Reserves (or fund balances) for governmental entities that are classified as spendable are generally considered appropriate in order to:

Maintain Working Capital

  1. Meet cash flow requirements.
  2. Provide contingencies for unpredictable revenue sources.
  3. Provide contingencies for emergencies (such as natural disasters) and unpredictable expenditures.

Fund Capital Asset Replacement and Debt Retirement

  1. Provide funding for capital asset replacement.
  2. Meet debt reserve covenants/requirements.
  3. Prepay outstanding debt.

The appropriate level of reserves for a given governmental entity depends on an analysis of these six (6) factors, along with any statutory requirements or other applicable criteria.

It is the policy of the Board of County Commissioners (BOCC) to maintain prudent reserves for established funds based on the six (6) factors listed above.

All reserve policies shall be analyzed on a periodic basis according to the six (6) factors listed above.

Definitions:

Reserves are the difference between the current assets (cash, accounts receivable, investments, etc.) and the current liabilities (salary and wages payable, accounts payable, etc.) of each County fund.  Reserves are also known by other names, such as fund balances, rainy-day funds, and contingency funds.

In accordance with Governmental Accounting Standards Board (GASB) Statement No. 54, fund balance classifications have been clarified to allow reserves to be more consistently applied.  There are two primary type of fund balance reserves: Spendable and Non-spendable. 

Non-spendable amounts are fund balances associated with noncash items such as inventories.  These funds are not available to help maintain working capital or fund capital replacement or debt retirement.

Spendable reserves or fund balances can be further classified into the following categories:

Restricted fund balance category includes amounts that can be spent only for the specific purposes stipulated by constitution, external resource providers, or through enabling legislation.

Committed fund balance classification includes amounts that can be used only for the specific purposes determined by a formal action of the government’s highest level of decision-making authority.

Assigned fund balance classification are intended to be used by the government for specific purposes but do not meet the criteria to be classified as restricted or committed. In governmental funds other than the general fund, assigned fund balance represents the remaining amount that is not restricted or committed.

Unassigned fund balance is the residual classification for the government’s general fund and includes all spendable amounts not contained in the other classifications.

Governments are required to classify, and report amounts in the appropriate fund balance classifications by applying their accounting policies that determine whether restricted, committed, assigned, and unassigned amounts are considered to have been spent. Disclosure of the policies in the notes to the financial statements is required.

It is the policy of the BOCC to maintain a reserve in the County’s General Fund according to the following calculation:

Reserve Category

Policy Calculation

Meet Cash Flow Requirements
(maintain working capital)

Maintain minimum reserve equal to 1/13 of the  next year’s budgeted payroll in the General Fund  (the equivalent of one payroll, including fringe benefit costs)

Provide contingencies for unpredictable revenue sources
(maintain working capital)

Maintain minimum reserve equal to 10% of next year’s budgeted sales tax revenue in the General Fund

Provide contingencies for unpredictable revenue sources
(maintain working capital)

Maintain minimum reserve equal to 20% of next year’s budgeted compensating use tax revenue in the General Fund

Provide contingencies for unpredictable revenue sources
(maintain working capital)

Maintain minimum reserve equal to 25% of next year’s budgeted investment income in the General Fund

Provide contingencies for unpredictable revenue sources
(maintain working capital)

Maintain minimum reserve equal to 10% of next year’s budgeted intergovernmental revenue in the General Fund

Provide contingencies for unpredictable revenue sources
(maintain working capital)

Maintain minimum reserve equal to 3% of next year’s budgeted Ad Valorem Tax Property Taxes in the General Fund

Provide contingencies for unpredictable revenue sources
(maintain working capital)

Maintain minimum reserve equal to 10% of next year’s budgeted charges for services in the General Fund

Provide contingencies for unpredictable revenue sources
(maintain working capital)

Maintain minimum reserve equal to 10% of next year’s budgeted miscellaneous revenue in the General Fund

Provide contingencies for unpredictable revenue sources
(maintain working capital)

Maintain minimum reserve equal to 10% of next year’s budgeted motor vehicle taxes in the General Fund

Provide contingencies for emergencies
(maintain working capital)

Maintain minimum reserve equal to 5% of next year’s budgeted General Fund expenditures, excluding intrafund transfers, cost allocation, and grant expenditures

Meet debt service covenants/requirements

Maintain minimum reserve equal to 25% of next year’s budgeted General Fund lease payments to the Public Building Commission

The dollar amount of the reserve for the General Fund will vary each year according to the policy calculations.  As a general guideline, the policy calculation is expected to generate a reserve amount that ranges between 20% and 25% of estimated annual General Fund net revenues.

In addition to other General Fund reserves, an Auxiliary Fund shall be established primarily to provide additional funding stability for the Health Care Fund. These funds would be kept within the General Fund and transferred to the Health Care Fund if the current reserves in the Health Care Fund are less than the secured funding amount, as required by the Health Care Policy (110.4). Auxiliary funds in excess of “secured funding” may be authorized for other purposes by the Board of County Commissioners, dependent on the stability and current performance of the Health Care Fund. The Auxiliary Fund will be classified as committed balances within the General Fund on the County’s financial statements in accordance with the GASB Statement No. 54.

Any General Fund reserve amounts in excess of the policy calculation are one-time revenues and may be used according to section 120.6  Use of One-time and Unpredictable Revenues.

If the County’s General Fund reserve falls below the minimum policy calculation, the County Manager shall submit a recommended plan to the BOCC, as soon as practical but not to exceed 90 days following receipt of notice from the Director of Budget and Financial Planning, to rebuild the reserve to the minimum level.

Definitions:

The Public Building Commission (PBC) is a separate legal entity which issues lease purchase revenue bonds for the purpose of acquiring, constructing, and renovating facilities.  When bonds are issued, the County enters into a lease agreement with the PBC for the use of the facilities and makes an annual lease payment to the PBC.  The Board of County Commissioners serves as the governing body of the PBC.

General Fund net revenues are the total annual budgeted revenues for the General Fund which includes grant revenue but excludes intrafund transfers and cost allocation expenditures budgeted in the General Fund.

It is the policy of the BOCC to maintain a reserve in the County’s Debt Service Fund and the Library’s Debt Service Fund between 5% and 10% of the annual principal and interest amounts due on outstanding bonds, plus 100% of any annual principal and interest amounts due on outstanding temporary notes.

Any Debt Service Fund reserve amounts in excess of 10% can only be used to reduce the amount of outstanding debt or to reduce the debt service property tax levy.

If the County’s Debt Service Fund reserve or the Library’s Debt Service Fund reserve falls below 5%, the County Manager shall submit a recommendation to the BOCC, as soon as practical but not to exceed 90 days following receipt of notice from the Director of Budget and Financial Planning and the Director of Treasury and Financial Management, to rebuild the reserve to the minimum level.

It is the policy of the BOCC to maintain financial reserves, including funding for plan run out, within the County’s Health Care Fund.  The amount of the reserve target shall be authorized annually by the BOCC based upon funding recommendations prepared by the County Manager.  As a part of the annual budget process, the County Manager or her designee shall provide to the BOCC a full analysis of the Health Care Fund and its reserves. The analysis will include the difference between projected and actual collections and expenditures and the change in fund balance.  Funding for the reserves shall be included in the annual budget in an amount calculated to provide a reserve level of “secure funding.”

The “secure funding” level shall be determined based on three components to reasonably calculate: 

  1. One-month of medical, dental and vision expenses “incurred but not reported” (IBNR) to the Health Care Fund.
  2. An amount reasonably calculated to cover three-months of unanticipated administrative expenses related to the run-out claims and “IBNR” expenses.
  3. An actuarially based percentage above the expected claims over a two-year period that would not be reimbursed under the County’s aggregate stop-loss coverage so that the County’s risk is consistently calculated in order to manage large claims fluctuations.

In addition to reserves in the Health Care Fund, the County will also maintain an Auxiliary Fund (as committed reserves) within the General Fund, in accordance of Policy 110.2, for the purpose of augmenting the Health Care Fund reserves. During the annual budget process, projected funding levels for both the Health Care Fund and the Auxiliary Fund funding will be based on actuarial trends and projections of the upcoming year, with the apportionment between the Health Care Fund and the Auxiliary Fund reserve based on the projected performance of the Health Care Fund, and the funding necessary to reach or maintain the Health Care Fund reserves at the secure funding level. Interest earned on the investment on moneys in the Health Care fund shall be credited to the Health Care Fund.

All funds, including reserve amounts, contained in the Health Care Fund shall be used exclusively for the purpose of that fund. As  committed reserves, the Auxiliary Reserve funds will be available for transfer to the Health Care Fund from the General Fund to maintain its reserves at the secure funding level.  Auxiliary fund reserves in excess of secured funding may also be reclassified and appropriated by the Board of County Commissioners for other purposes, subject to the stability and performance of the Health Care Fund.

In the event that the auxiliary reserve funds are depleted and the Health Care Fund reserve falls below 50% of secure funding, the County Manager shall prepare and submit recommendations to the BOCC, as soon as practical but not to exceed 90 days following receipt of notice from the Director of Budget and the Director of Treasury and Financial Management, to reestablish the reserve at acceptable levels.  During the annual budget process, funding will be based on actuarial trends and projections of the upcoming year, with the apportionment between the Health Care Fund and the auxiliary reserve based on the projected performance of the Health Care Fund and the funding necessary to reach or maintain the Health Care Fund reserves at the secure funding level.

It is the policy of the Board of County Commissioners (BOCC) to have and maintain financial reserves, within the County’s Risk Management Fund, to pay claims and claims-related expenses. The County Manager will prepare funding recommendations with the BOCC making the final determination of the amount of the Risk Management Fund reserves.

The Risk Management Fund is comprised of two distinct reserve funds:

  1. Risk Management Reserve (liability and property)
  2. Workers’ Compensation Reserve

In accordance with statutory requirements and County resolution, each of the two reserve funds is segregated and has its own defined purpose, funding methodology, and disbursement procedures. The County Manager shall submit a statement of projected expenses and funding allocations for each reserve fund as a part of the proposed annual operating budget for consideration by the BOCC.  This funding shall be in an amount determined annually by an independent actuary firm.  The objective for each reserve fund is to provide a reserve sufficient to pay, at least, expected ultimate limited losses.

The Risk Management Reserve will be funded at least to the expected loss level and up to an 80% confidence level calculated by the Actuary.  The Workers’ Compensation Reserve will be funded at the Expected Loss level calculated by the Actuary.

Expected ultimate limited loss is the total amount projected to be paid for a particular claim period to bring all claims for that claim period to closed status.  Projected ultimate limited losses are the total loss costs, including claim settlements, legal fees, and other claims related expenses within the County’s self-insured, retained loss, and deductible levels.

The County Manager shall develop and adopt criteria and procedures, recognized in the risk management industry, for determining the funding level and those criteria shall consider the following:

  1. The County’s five-year historical and actuarially projected claim costs.
  2. Exposure to catastrophic claims or other unexpected costs, such as legal or statutory changes.
  3. Levels of self-insurance, self-funded retentions, and deductibles for each type of risk.
  4. The objective to maintain fund balances at a level that provides a positive cash balance during the fiscal year, barring any catastrophic occurrence.

Each fund, including reserve amounts, contained in the Risk Management Fund, shall be used exclusively for the purpose of that fund, and excess funds, whether considered reserved or otherwise, shall not be transferred to any other fund nor used for any other purpose, other than noted within each fund, but may be spent down within the fund to reduce future contributions from the amounts allocated to departments and agencies.  Interest earned on the investment on moneys in such reserve fund shall be credited to the Risk Management Fund.

In the event that the amount of the fund reserve falls below the projected ultimate limited loss level for a given year, the County Manager may prepare and submit recommendations to the BOCC, within 90 days following receipt of notice from the Director of Budget and Financial Planning, to replenish the fund to an acceptable level.

In the event that the balance for the Risk Management Fund at the end of any fiscal year, exceeds the amount required to pay for compensation, benefits, and expenses, plus any additional amount required to pay all pending claims, the County Manager, may elect to transfer all or part of the excess amount to certain other reserve funds or may apply all or part of the excess to the budget appropriation of the next succeeding fiscal year for the Risk Management Fund, subject to the approval of the BOCC, as required by law.

It is the policy of the BOCC to maintain a reserve in the County’s Developmental Supports Fund between 8% and 12% of budgeted annual Developmental Supports Fund expenditures.  

Any Developmental Supports Fund reserve amounts in excess of 12% are one-time revenues and shall be used according to section 120.6  Use of One-time and Unpredictable Revenues.

If the County’s Developmental Supports Fund reserve falls below 8% of budgeted annual Developmental Supports Fund expenditures, the Developmental Supports Board and staff shall work in conjunction with the County Manager to submit a recommended plan to the BOCC, as soon as practical but not to exceed 90 days following receipt of notice from the Director of Budget and Financial Planning and the Director of Treasury and Financial Management, to rebuild the reserve to the minimum level.

It is the policy of the BOCC to maintain a reserve in the County’s Mental Health Fund between 8% and 12% of budgeted annual Mental Health Fund expenditures.  

Any Mental Health Fund reserve amounts in excess of 12% are one-time revenues and shall be used according to section 120.6  Use of One-time and Unpredictable Revenues.

If the County’s Mental Health Fund reserve falls below 8% of budgeted annual Mental Health Fund expenditures, the Mental Health Board and staff shall work in conjunction with the County Manager to submit a recommended plan to the BOCC, as soon as practical but not to exceed 90 days following receipt of notice from the Director of Budget and Financial Planning and the Director of Treasury and Financial Management, to rebuild the reserve to the minimum level.

It is the policy of the BOCC to maintain a reserve in the Wastewater Operations & Maintenance (O&M) fund between 90 days and 180 days of the budgeted annual Wastewater O&M expenditures.

Reserves for wastewater utilities are generally considered appropriate in order to:

  1. Meet cash flow requirements.
  2. Provide contingencies for unpredictable revenue sources.
  3. Provide contingencies for emergencies (such as natural disasters) and unpredictable expenditures.
  4. Provide funding for capital asset replacement.
  5. Meet debt reserve covenants/requirements.
  6. Maintain rate stability.

Any Wastewater fund reserves in excess of 180 days should be used in accordance with Policy 120.6  Use of One-time and Unpredictable Revenues.

If the reserve falls below 90 days of budgeted annual Wastewater O&M fund expenditures, Wastewater staff shall work in conjunction with the County Manager to submit a recommended plan to the BOCC, as soon as practical but not to exceed 90 days following receipt of notice from the Director of Budget and Financial Planning to rebuild the reserve to the minimum level.

It is the policy of the BOCC to maintain a minimum reserve between 5% and 10% of budgeted annual expenditures for the following funds:

  • Public Works Fund
  • Transportation Fund
  • Airport Fund
  • Library Operating Fund
  • Library Special Use Fund
  • 911 Fund
  • County Building Fund
  • Alcohol Tax Fund
  • Public Health Fund

Any reserve amounts in excess of 10% shall be used according to section 120.6  Use of One-time and Unpredictable Revenues.

If reserve levels fall below the minimum policy calculation for the funds listed above, excluding the Airport Fund, the Library Operating Fund, and the Library Special Use Fund, the County Manager shall submit a recommended plan to the BOCC, as soon as practical but not to exceed 90 days following receipt of notice from the Director of Budget and Financial Planning and the Director of Treasury and Financial Management, to rebuild the reserve to the minimum level.

If reserve levels fall below the minimum policy calculation for the Airport Fund, the Library Operating Fund, and the Library Special Use Fund, the appropriate governing board and staff shall work in conjunction with the County Manager to submit a recommended plan to the BOCC, as soon as practical but not to exceed 90 days following receipt of notice from the Director of Budget and Financial Planning and the Director of Treasury and Financial Management, to rebuild the reserve to the minimum level.

The following funds are not required to maintain a reserve:

  • Stormwater Fund
  • Prosecuting Attorney Fund
  • Stream Maintenance Fund

This policy excludes funds for the Park and Recreation District (the District is subject to a separate set of statutes).