City staff 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 an advance of property taxes from the County Treasurer.  At the time the FY ’20 budget was filed, the General Fund’s beginning Fund balance was expected to be 12.0% and is budgeted to be 6.0% by the end of fiscal year 2019-2020 (FY20), thus, cash flow for the General Fund is expected to be difficult to manage in FY ’20 due to the declining reserve.

Property tax receipts comprise approximately 32% percent of the General Fund budgeted revenues in FY20.  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 any 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 at a public hearing.

NRS 354.6118 requires the City hold a public hearing before such a loan is made to determine 1) a sufficient amount of money is available for the loan; 2) money is not restricted as to its use; 3) that the loan of the money will not compromise the economic viability of the Fund from which the money is loaned; 4) the amount of time the money will be on loan from the Fund; 5) the terms and conditions for repaying the loan; and 6) 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.

Over the last five years (FY15 to FY19), the General Fund has experienced negative cash situations on 31 out of 1,826 days (less than 2 percent of the time).  The shortest term of ‘negative’ cash was one day, the longest was six days.  The amount of the interfund loans ranged from $2,262 to $1,130,691.  Under authority granted by Council in prior years, staff established interfund loans during these periods of negative cash in conformance with Nevada law.

Because the General Fund ending fund balance is expected to be lower than 12.5 percent at the end of both FY19 and FY20, staff anticipates that FY20 General Fund cash flows will need to be aggressively monitored and managed.  The interfund loan authority requested is up to $1,200,000 and the loan period proposed is no more than 90 days.

City staff believes that an interest free loan of up to $1,200,000 from the Motor Vehicle Maintenance Funds available non-restricted assets for a period of 90 days or less would not compromise the economic viability of the Motor Vehicle Maintenance Fund during FY20.

The authority to use an interfund loan will assist city staff in complying with state law and should increase the probability of our auditors reporting that we have conformed with Nevada law during our FY20 cash management process.  Approval to establish interfund loans as needed will be valid for FY20 only.

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 during FY20 for General Fund cash flow purposes.

Council could reject the resolution authorizing the Financial Services Department to establish an interfund loan to the General Fund from the Motor Vehicle Maintenance Fund as needed during FY20 for General Fund cash flow purposes.  Any future violations of NRS relating to negative cash flows in the General Fund will be noted in the City’s Comprehensive Annual Financial Report (CAFR).

Council may deny authorization of an interfund loan to the General Fund from the Motor Vehicle Maintenance Fund as needed and provide further direction to city staff.

I move to approve Resolution No. 3348 authorizing the Financial Services Department to establish an interfund loan to the General Fund from the Motor Vehicle Maintenance Fund of the City of Sparks, as necessary during fiscal year 2019-2020 (FY 20) for General Fund cash flow purposes.