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Request for Action <br />To <br />Item Number <br />Mayor and City Council <br />9.2 <br />Agenda Section <br />Meeting Date <br />Prepared by <br />Work Session <br />September 20, 2021 <br />Lori Ziemer, Finance Director <br />Item Description <br />Reviewed by <br />Liquor Fund Reserve Balance <br />Cal Portner, City Administrator <br />Reviewed by <br />Action Requested <br />Liquor fund reserve balance discussion. <br />Background/Discussion <br />The primary reasons for maintaining reserves in an enterprise fund is to provide adequate working capital to <br />ensure stable service delivery, meet future capital needs, and protect against financial instability. The Government <br />Finance Officers Association (GFOA) recommends governments use working capital as the measure of available <br />margin for meeting its obligations, which typically is the liquor fund's cash balance. It is also recommended to use <br />annual operating expenditures as the measurement in setting a benchmark reserve target. A minimum level of <br />reserves should be sufficient to provide adequate cash flow needs based on operating expenditures. <br />According to the city's Financial Management Policy, the liquor fund will maintain a cash flow reserve balance at a <br />level of one year of next year's projected operating expenditures plus next year's debt service obligations (principal <br />and interest). Reserve levels may need to be adjusted for the following additional considerations: <br />■ Transfers out to other funds. <br />■ Current and future capital needs. <br />■ Asset age and condition may have greater exposure to higher maintenance and repair costs. <br />■ Economic downturns or unforeseen emergencies or events that would trigger a financial hardship. <br />■ Planned one-time expenditures or grant opportunities. <br />■ Debt position and the impact on the city's credit rating. <br />■ Needed funding source for identified capital projects. <br />■ Management's plan for reserves. <br />Council Consideration <br />Level of liquor fund reserves. <br />Possible uses of excess reserves. <br />Financial Impact <br />N/A <br />Mission/Policy/Goal <br />Leverage strengths to develop a sustainable and prosperous community. <br />Attachments <br />Comparison of municipal liquor stores <br />Liquor fund information <br />The Elk River Vision <br />A welcoming community with revolutionary and spirited resourcefulness, exceptional <br />service, and community engagement that encourages and inspires pi ospei ly. <br />M <br />TUREJ <br />Updated.• August 2020 <br />