Page 223 - Southlake FY23 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 and a Aaa from Moody’s. Three ‘AAA’ ratings put the
City into a small and elite group of municipalities that enjoy the highest possible credit ratings assigned from all
rating agencies.

In the most recent credit report issued, S&P noted “Very strong management with strong financial policies and
practices,” stating “When drafting the budget, management uses historical trends and statistical information to
forecast revenue and expenditures, and works closely with department heads during the budget process to identify
departmental needs. Officials monitor the budget monthly and adjustments are typically made at midyear, although
management has the flexibility to make amendments throughout the fiscal year. The city has a comprehensive formal
long-term financial plan and a formal long-term capital improvement plan (CIP), with identified funding sources.
It also has a written, in-depth, and conservative investment policy, and gives monthly updates regarding holdings
and earnings to the governing body. It also has a formal debt management policy that it has historically adhered to,
identifying targets for refunding parameters and the types of debt that are acceptable for issuance. Finally, the city
has a formal reserve policy that targets reserves of at least 25% of operating expenditures for emergencies, which it
has historically maintained above this target.”

The Fitch Rating report notes, “Robust planning and prudent cost management support maintenance of a strong
financial position... Fitch expects Southlake to demonstrate exceptionally strong financial resilience during an
economic downturn, consistent with past performance. The ‘aaa’ resilience assessment is informed by the city’s
revenue raising capabilities, solid expenditure flexibility and ample financial cushion.”

The Moody’s report details why the City’s credit rating was upgraded to Aaa, and states “ The upgrade to the Aaa
Issuer Rating reflects...a steady history of robust reserves supported by multiple years of strong operating
performance. The Aaa rating incorporates the city’s modest debt and pension burden that will remain affordable
supported by a stable local economy, and prudent financial practices. One of the innovative tools that the City uses
to help manage our strong financial performance is the Strategic Initiative Fund, also 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.

222 FY 2023 City of Southlake | BUDGET BOOK
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