The Financial Services Department has determined that an ending Fund balance equal to approximately 12.5% of expenditures is generally necessary to meet General Fund cash flow needs of any given fiscal year without the use of extraordinary measures, such as requesting for an advance of property taxes from the County Treasurer.  At the time the FY ’18 budget was filed, the General Fund’s beginning Fund balance was expected to be 6.4%, and 6.0% by the end of FY ’18, thus, cash flow for the General Fund is expected to be difficult to manage in FY ’18. 

Property tax receipts comprise approximately 34% percent of the General Fund budgeted revenues in fiscal 2017-2018.  These revenues are used to pay the expenses of the City as they arise.  Because property tax revenues are distributed in four installments, which are not equally distributed across the fiscal year, and expenses are paid on a regular schedule throughout the year, cash flow issues may arise.  The city can request early distribution of property tax collections, but that may not be sufficient at the time that cash is needed.

If the Fund experiences a period of ‘negative’ cash, it is considered to have participated in an interfund loan per NAC 354.290 as revised in 2010, and the resulting interfund loan would be in violation of NRS 345.6118 if no public hearing authorizing the loan was held.    The duration of any such interfund loan is not addressed by NAC 354.290, thus, one day of negative cash is deemed to result in a violation of NRS 354.6118 unless the attached Resolution allowing for such short-term interfund loans is approved.

NRS 354.6118 requires the City hold a public hearing before such a loan is made to determine, that a sufficient amount of money is available for the loan and the money is not restricted as to its use, and that the loan of the money will not compromise the economic viability of the Fund from which the money is loaned, and establish the amount of time the money will be on loan from the Fund, and the terms and conditions for repaying the loan, and the rate of interest, if any, to be charged for the loan.

The ability to predict the cash needs of the General Fund and hold a public hearing before expenditures are made may not be practicable.  Therefore approval of a Resolution authorizing the Financial Services Department to establish an interfund loan from the Motor Vehicle Maintenance Fund to the General Fund, as needed, is requested.

Since the start of fiscal year 2013 to June 2017, the General Fund has experienced negative cash situations on 22 out of 1,826 days (1 percent).  The shortest term of ‘negative’ cash was one day, the longest was six days.  The amount of the interfund loans range from $24,540.49 to $1,130,621.33.

Due to an abnormally low budgeted Fund balance, it is anticipated that fiscal year 2017-2018 General Fund cash flows will be need to be more aggressively monitored and managed than in past years.  In anticipation of tighter times, the interfund loan being requested for approval is increasing from $1,000,000 to $1,200,000 and the loan period is proposed to increase from 30 days to 90 days.

Approving this Resolution will reduce the likelihood of violation findings, related to the General Fund, from our audit of fiscal year ending 06/30/2018. 

It is anticipated that an interest free loan of up to $1,200,000 from the Motor Vehicle Maintenance Funds non-restricted assets for a period of 90 days or less would not compromise the economic viability of the Motor Vehicle Maintenance Fund during fiscal year 2018.  Thus, we are seeking Council approval today of the attached Resolution that would allow the Financial Services Department to establish an interfund loan (non-interest bearing) of up to $1,200,000 for a period not to exceed 90 days in order to efficiently manage cash flow and comply with NRS 354.6118 as interpreted by NAC 354.290.

For Council to be able to accurately determine that a loan can be made from a Fund with sufficient unrestricted money and that the loan does not compromise the economic viability of the loaning Fund, Council will be required to approve a Resolution similar to this each year.

Council could approve the Resolution authorizing the Financial Services Department to establish an interfund loan to the General Fund from the Motor Vehicle Maintenance Fund as needed.  Interfund loans from the Motor Vehicle Maintenance Fund to the General Fund would be authorized as needed within fiscal year 2018.

Council could deny authorization of an interfund loan to the General Fund from the Motor Vehicle Maintenance Fund as needed.  Future violations of NRS, if any, will be noted in the City’s Comprehensive Annual Financial Report (CAFR).

I move to approve Resolution No. 3315 authorizing an interfund loan to the General Fund of the City of Sparks as necessary for General Fund cash flow purposes.