At the April 1 meeting of the City Council Audit & Finance Committee, the Committee voted unanimously to recommend appropriating up to $25 million to a special allocation fund intended to support declining reserves in the General Fund.
On April 6, 2020, the City Council adopted Ordinance 19108, which authorized the City Manager to execute a series of Interfund Loans for the General Fund from the City’s cash and investment pool to be named Emergency General Fund Loan Fund in an aggregate amount not to exceed Twenty-Five Million and NO/100 Dollars ($25,000,000), pursuant to Section 8 of the Financial Policies for the City of Independence and Section 8.8 of the Charter of the City of Independence, Missouri.
City staff presented the year-end financial report for the Fiscal Year ending June 30, 2020 at the August 28, 2020 meeting of the Audit and Finance Committee. This presentation highlighted that while the General Fund reserves declined by $1.55 million in Fiscal Year 2019-20, this was better than the forecasted loss of nearly $4.7 million. The year-end reserve balance for the General Fund was $5.3 million, or 7%. This exceeded the forecasted year-end balance for the General Fund of $1.4 million, or 1.8%.
Economic forecasts remain murky at best for the remainder of 2020 and into 2021. As a result, City staff recommends reducing the amount of the available interfund loan to $12.5 million. City staff further recommends conducting a mid-year analysis (approximately January 2021) to reassess the City's financial position for the Fiscal Year ending June 30, 2021 and make additional determinations about the need for the remaining $12.5 of available loan funds.
As a reminder of the source of the interfund loan, reserve funds are allocated into the City’s cash and investment pool. The cash and investment pool is used by most City funds. Each fund’s portion of this pool is accounted for as “pooled cash and investments” in the audited financial statements. Interest earned on the investments is allocated to each fund on the basis of average monthly cash balance in the pool. An example of amounts in the investment pool include utility reserved funds for future capital project expenses or amounts set aside for the General and special sales tax fund reserves. The loan to the General Fund would be treated as an investment from the pool and all interest earnings will be split equally between all funds based on their share of the appropriation. A monthly record will be provided to the Council until the Loan is completely paid off.
If a drawdown on the loan became necessary, bi-annual interest will be charged on the outstanding amount at a rate determined on the day of loan; with the rate being the midpoint between the Treasury Yield and the Bloomberg Muni Benchmark yield plus 50 basis points. (https://www.bloomberg.com/markets/rates-bonds/government-bonds/us)