The Town of Westcliffe (Town) has determined that accumulating and maintaining capital reserves as part of its annual budgeting process is important for long-term sustainability. The Town is committed to maintaining reasonable cash balances (reserves) to help offset the costs of future capital projects and replacements. The Town believes that establishing and maintaining such reserves will assist the Town in taking advantage of the “pay as you go” philosophy as opposed to relying entirely or heavily on debt financing. As such, the Town will be able to minimize the costs related to debt borrowing.
The Town is establishing the following fiscal policies as it relates to capital assets:
Capital projects and replacement program
On an annual basis and concurrently with the Town’s budgeting process, the Town Clerk will ensure that long-term capital projections (i.e., 5 years) are compiled by soliciting input and information from other Town staff. The capital projections will reflect significant anticipated capital projects (both new and replacement), the associated costs, and the projected timeframe/completion of the projects. The capital projections are intended for financial planning purposes and are not intended to obligate the Town, in any manner, to build or construct the projects.
Budgeting/funding for capital reserves
The Town will strive to assign a capital reserve within its current year’s budget that will be equal to the following:
- Using 12/31/15 estimated ending fund balance as a starting point, the Town will allocate 100% of what remains in the ending fund balance, after deducting TABOR reserve and “unassigned fund balance (working capital), to capital replacement reserves.
- Each year, the Town will allocate 100% of what remains in the ending fund balance, after deducting all other reserves, to the capital replacement reserves. This calculation will apply for purposes of budgeting and year-end financial statements.
- Capital replacement reserves will be monitored/tracked in the five-year capital improvement plan as well as in the Budget template, and will be reviewed/modified and updated in conjunction with the annual budgeting process. Borrowing from one asset category’s reserve to another is allowed with Town Board’s approval, and will be monitored/tracked in the same documents.
Uses of funds
Capital reserves will be utilized by the Town for capital projects, as contained within the five-year capital projections, as they are constructed. While it is the Town’s intent to only utilize its capital reserves for planned projects as contained in its five-year capital projections, it is understood that there may be unusual circumstances which may cause the Town to desire to use its capital reserves for unplanned and unanticipated capital purposes. In instances where such an event may occur, an affirmative vote of the majority by members of Town Board of Trustees will be required. At no time shall accumulated capital reserves be used for Town operational costs. Furthermore, should the Town use its capital reserves for unplanned and unanticipated capital outlay purposes, the Town will cause any such utilized reserves to be replenished within two years from the date of the reserves being drawn on.
Investing capital reserves funds
The Town acknowledges that it will be accumulating capital reserve balances that may or may not be used for an extended period of time. In order to maximize the Town’s investment earnings, the Town Board of Trustees will periodically, but no less than annually, analyze the capital reserve balances and various investment options available. Any and all investment considerations will adhere to State Statutes regarding permitted investments for governmental entities and to the Town’s adopted policies regarding investment, if any. Investment revenue earned on capital reserve balances will be used for costs incurred under this policy.
The Town Board of Trustees will be responsible for reviewing this policy on an annual basis in connection with the Town’s annual budgeting process to ensure that the Town’s goals under this policy are being carried out. Furthermore, as a result of the annual review of this policy, the Town Board of Trustees will consider revisions/updates to this policy as deemed necessary. Adoption and changes to this policy will require majority vote by the Town’s Board of Trustees.