WHEREAS, on June 1, 1982, Council adopted Resolution 26759 adopting financial policies and guidelines for the City of Seattle; and

WHEREAS, on August 11, 1986, Council adopted Resolution 27489 amending Resolution 26759 to reflect adopted changes and additions to the financial policies and guidelines for the City of Seattle; and

WHEREAS, on March 21 1994, Council adopted Resolution 28885 stating intent to adopt Citywide biennial budgeting for the biennium beginning January 1, 1995, and calling for biennial establishment of utility rates and other fees and charges, among other purposes; and

WHEREAS, the City Council and the Mayor are committed to high standards of financial management; and

WHEREAS, adopting and periodically updating financial policies are important actions that help to assure consistent and rational financial management; and

WHEREAS, the City Council and Mayor have reviewed the attached financial policies, and wish to update, clarify and, in certain instances, change the respective policies;

NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF SEATTLE THAT:

Section 1. Resolution 26759, Resolution 27489, and Section 3 of Resolution 28885 are hereby superceded, and the policies attached to this Resolution (Exhibit "A") are hereby adopted.

Adopted by the City Council the ____ day of _________, 200__, and signed by me in open session in authentication of its adoption this _____ day of __________, 200__. _________________________________ President of the City Council

Filed by me this ____ day of _________, 200__. ____________________________________ City Clerk

September 19, 2001 version # 3 Exhibit A

CITY OF SEATTLE MISCELLANEOUS FINANCIAL POLICIES

Introduction

The following policies are Citywide financial policies covering revenues, expenditures, cash management, fund balances and reserves, discount rates, inventory and physical assets, and accounting policies. Several of these policies are based upon existing policies from previous resolutions or ordinances, others express existing City policy or practice that has not previously been formally adopted by Council, and others set forth new policies. Policy 11 and 12 on fund balances and Policy 13 on the discount rate fall into this latter category.

Definitions

Physical assets Those assets physically used in the daily operation of City business and that (a) have a useful life of one year or greater, and (b) exceed a certain dollar threshold. (Currently, the dollar threshold is $5,000 for general government, and $1,000 for the City's utilities. The Executive is discussing increasing the threshold for the utilities to the general government level.)

Reasonable life of physical assets To establish the useful life of its physical assets, the City uses the IRS guidelines for depreciation or other appropriate studies of the reasonable life of particular physical assets.

Revenue taxes from Licensing RCW 35.22.280 empowers the City "to grant licenses for any lawful purpose, and to fix by ordinance the amount to be paid therefor,..." Title 5 of the Seattle Municipal Code provides for taxes imposed as an exercise of that licensing power. These taxes are the Admissions Tax (SMC 5.40), the Business and Occupation Tax (SMC 5.44), the Business Tax Utilities (SMC 5.48), and the Gambling Tax (SMC 5.52).

Regulatory License fees RCW 35.22.280 empowers the City "to grant licenses for any lawful purpose, and to fix by ordinance the amount to be paid therefor,..." Regulatory licenses are those which the City grants for allowable activities subject to the control or direction of established City laws.

Working capital -Amount of current assets minus current liabilities.

Revenue Policies

Policy 1. Revenue Estimates: As part of the Mayor's budget proposal, the Executive shall develop a revenue estimate that is based on the best available economic data and forecasts. [Policy revised from Res. 27489]

Policy 2. Fees and Rates: The City intends to adopt rates, fees and cost allocation charges no more often than biennially. The rate, fee, or allocation charge structures may include changes to take effect at specified dates during or beyond the biennium. Other changes may still be needed in the case of emergencies or other unanticipated events. [Policy Revised from Res. 28885]

Policy 3. Taxing Guidelines: When exercising the City's licensing powers, the City intends to consider the following guidelines for existing and any proposed new regulatory license fees:

Sufficiency the fee should cover the full cost of issuance, administration, and enforcement of the regulatory license.

Efficiency the fee should be designed for easy, inexpensive administration by the City and easy, inexpensive compliance by the licensee.

Simplicity the fee should be easily understood by licensees and City officials, leaving as small a margin as possible for subjective interpretations.

The City intends to consider the following guidelines for existing and any proposed new revenue taxes from licensing:

Efficiency the tax should be levied in a way which can be easily and inexpensively administered by the City, and complied with by the taxpayer. A minimum of the revenue raised through the tax should be consumed in the process of raising it.

Simplicity tax laws should be written so they can be readily understood by the taxpayer and the tax official. The amount of tax due should be easily computed and verified.

Equity no arbitrary distinctions should be made among taxpayers or classes of taxpayers. However, distinctions will be made when the City believes that such distinctions are appropriate and will not have a disproportionate impact on taxpayers or a class of taxpayers. A tax should be designed so that all taxpayers under substantially identical circumstances pay substantially the same amount of tax.

Neutrality a tax should avoid distorting the economic signals which are received in the marketplace and which determine the relative amounts of the various goods and services produced. The effects of taxes levied by other jurisdictions should also be considered.

Growth tax rates should not be so high as to either discourage reasonable economic growth or to place Seattle in a position of comparative disadvantage vis--vis other communities.

[Policy Revised from Res. 27489]

Expenditure Policies

Policy 4. Paying Current Expenditures: In general, the City will strive to pay for general government current operating expenditures with current revenues, but may use fund balance or other resources to meet these expenditures. Revenues and expenditures will be monitored throughout the year. [New Policy]

Policy 5. Compliance with State Accountancy Act and Restriction on Receipt of Benefit from Appropriations: In compliance with the State Accountancy Act, no City fund whose purpose is restricted by state or local law shall be used for purposes outside of these restrictions. [New Policy]

Policy 6. Grant Program Review and Local Funding Requirements: Before the City accepts grants to fund new service programs with State or Federal funds, the City will review, either through fiscal notes or the budget process, the prospective grant and program, with significant consideration given to whether locally generated funds will be required to support these programs when original funding is no longer available. [Policy revised from Res. 27489]

Cash Management Policies

Policy 7. Lines of Credit: In accordance with Ordinance 120012 amending SMC 5.16.030, the City Finance Director is authorized to establish a line of credit for the City with any qualified public depository for cashing City warrants and other financial purposes. The interest rate shall not be greater than eighteen percent annually or the maximum rate allowed by law, whichever is less. The total of all lines of credit with all qualified public depositories shall not exceed Ten Million Dollars. [Ord. 120012]

Policy 8. Warrant Overdrafts: In accordance with Ordinance 120012 amending SMC 5.16.050, the City Finance Director is authorized to contract with the bank at which the City maintains its principal account for the bank to postpone presentment of City warrants until the City can provide for their full payment. These warrants will be aggregated into a warrant overdraft account, which shall not in aggregate exceed Twenty Million Dollars. The fee charged by the bank shall not exceed that bank's current prime rate multiplied by 1.5 for the dates for which the credit is outstanding. [Ord. 120012]

Policy 9. Cash Balances: In compliance with GAAP standards that all funds have a non-negative cash balance at the close of the fiscal year, department directors of funds relying on interfund loans to maintain a non-negative cash balance (as provided for under SMC 5.06.030 see also City Investment Policies) shall by December 31 of the ending fiscal year provide to the Director of Finance a plan to repay the loan and achieve a non-negative cash balance on a sustainable basis, or a progress report on any outstanding loan repayment plan. [New Policy]

Fund Balance and Reserves Policies

Policy 10. Working Capital: Working capital for the General Fund and operating funds should be maintained at sufficient levels so that timing lags between revenues and expenditures are normally covered without any fund incurring negative cash balances for greater than ninety (90) days. Exceptions to this policy are permitted with prior approval by the City's Director of Finance. [Policy Revised from Res. 27489]

Policy 11. General Policy on Fund Balances: The City has specific funds, subfunds and accounts that are authorized to maintain reserves, set-asides, and other fund balances for specific purposes, such as for revenue stabilization, emergencies or catastrophic claims, or future commitments (e.g., major maintenance, capital replacement, debt payments, etc.). The City's fund-specific financial policies identify the various funds that are allowed to maintain such reserves, set-asides, or other fund balances. For all other funds, subfunds and accounts, the Department of Finance in consultation with Departments shall periodically review fund balance accumulations and the uses thereof. [New Policy]

Policy 12. Fund Balance Reporting: The Executive will provide to the Council annually with the budget submittal a summary of the use of fund balances to support appropriations in the Mayor's Proposed Budget. The summary will document fund balance uses for the General Subfunds, Pension Funds, Departmental Operating Funds, and non-utility Enterprise Funds, and will include fund balance forecasts for the Budget Year for these funds. Additional fund balance information will be provided in the Comprehensive Annual Financial Report. [New Policy]

Discount Rate Policies

Policy 13. Discount Rate Policy: Some City projects provide financial costs and benefits that are spread out over many years. For such projects, the decision about whether to undertake the project or the choice between different ways of doing the project requires careful evaluation of these costs and benefits. Since these occur at different times, some form of "present value" calculation should be done to convert costs and benefits into comparable amounts today. This is done using a "discount rate", which is an interest rate that reflects the time value of money.

There is no single correct discount rate. Discount rates vary among individuals, businesses, and communities. Different discount rates can be used for different projects, depending on the circumstances. Furthermore, discount rates change over time as economic conditions change.

Any analysis in which a discount rate is used should include a justification of the choice of the rate. The appropriate discount rate depends on the use of the analysis, the type of project being considered, the financing approach and possibly other peculiarities of the project. The justification should take into account the following guidelines.

For "enterprise" projects, i.e., projects whose expected returns would generally be related to the performance of the economy and which are often thought of as "business-like" activities, the discount rate should be taken from the current version of federal circular number A-94. This rate approximates the inflationadjusted marginal pretax rate of return on an average investment in the private sector in recent years.

For projects whose returns are independent of the economy's performance, which includes most typical "government" projects such as transportation infrastructure or public buildings, the rate should be the projected rate of inflation plus 2%. This is an estimate of the long-run rate of time preference and is approximately equal to the potential rate of return on the City's investments.

A different discount rate may be used if justified by one of the following criteria

* The rate may be adjusted to take into account the riskiness of the project. For example, if an enterprise project is judged to be riskier than a typical private sector investment, then a higher discount rate should be used.

* An intermediate rate, i.e., a rate between the two rates described above, may be selected for projects whose expected returns are somewhat related to the performance of the economy.

Discount rates will be provided annually by the Finance Department. [New Policy]

Inventory Policies/Physical Assets

Policy 14. Inventory Maintained: An inventory of the City's physical assets shall be maintained. [Policy Revised from Res. 27489]

Policy 15. Amortization Schedule: An amortization schedule reflecting the reasonable life of physical assets shall be maintained. [Policy Revised from Res. 27489]

Accounting Policies

Policy 16. Accounting System Standards: The City will maintain an accounting and financial reporting system that conforms with generally accepted accounting principles and standards. [Policy Revised from Res. 27489]

September 19, 2001