Page 293 - Southlake FY22 Budget

STrATEGIC InITIATIVE FUnD

The Strategic Initiative Fund (SIF) was created in FY 2006 for the purpose of taking General Fund balance reserves in
excess of the City identified optimal fund balance level and using them for one-time expenditures for high-impact
projects such as infrastructure maintenance, community enhancement, technology and capital acquisition.

The City of Southlake is recognized for its strong financial management as evidenced by the assignment of ‘AAA’ ratings
by both Standard and Poor’s and Fitch Rating Services. Two ‘AAA’ ratings put the City into a small and elite group of
municipalities that enjoy the highest possible credit ratings assigned.

In the most recent credit report issued, S&P noted the following: “We view the City’s management as very strong, with
“strong” financial policies and practices under our Financial Management Assessment methodology, indicating financial
practices are strong, well embedded, and likely sustainable. Management uses historical trends, departmental needs,
and statistical information to forecast revenue and expenditures. Management has developed an informal long-term
financial plan and a formal five-year capital improvement plan with identified funding sources. Officials monitor the
budget monthly and make adjustments midyear. The city has a written, in-depth, and conservative investment policy,
and makes quarterly updates to the governing body. Debt management guidelines outline when city officials can
issue debt. A formal reserve policy targets reserves of at least 25% of operating expenditures for emergencies.” The
Fitch Rating report notes, “Robust planning and prudent cost management support maintenance of a strong financial
position... Fitch expects the city to demonstrate exceptional financial resilience during an economic downturn based
on its strong gap-closing capacity and solid reserve levels.” Both reports reference and describe the City’s use of an
innovative budget management tool referred to as the SIF.

sif hisTOry

The SIF concept was first used with the FY 2006 budget. The concept was simple: the City would strive to maintain its
optimal General Fund undesignated fund balance of 25% of operating expenses, and sweep any excess funds that had
accumulated in the fund balance over time into the SIF to be used for one-time, high impact projects.

The following sections describe Southlake’s budgeting goals, helping to provide context for the development and use
of the SIF.

Structural Balance. Good budgeting practices require a city to achieve structural balance; that is, to have enough
annual revenue to cover planned expenses for any given year. Balancing a city’s operating budget by dipping into
reserves is considered a poor budgeting practice for a city, in the same way that borrowing money from a personal
retirement account to pay for monthly household expenses would be considered unwise. Using reserves to balance
the annual budget can mean that the revenue base is not strong enough to support current service levels and could
result in an unsustainable budget over time.

The City of Southlake is committed to maintaining a budget with structural balance, not only with its current year
budget, but also for future years. Staff uses multi-year budgeting to determine if revenues are strong enough to
support the services of the City for future years.

Fund Balance. City policy originally adopted in August 1993 and amended in 2011 sets a fund balance range of 15-25%
of operating expenses for the General Fund. Fifteen percent is considered the minimum fund balance to achieve. The
policy defines 25% as the optimal reserve level for the General Fund. Council and staff are committed to having a
structurally balanced budget while maintaining the optimum fund balance of 25%.

Budget Performance. In any given year, the City’s revenue can perform better than expected. This is especially true
when revenue estimates are conservative. Likewise, City departments sometimes do not spend their entire budget

292 FY 2022 City of Southlake | BUDGET BOOK
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