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City of Flat Rock Wayne County, Michigan Ordinance No. 471 AN ORDINANCE TO AMEND THE CODE OF THE CITY OF FLAT ROCK BY ADDING SECTION 2-4 TO CHAPTER 2, ARTICLE I, OF SAID CODE, ADOPTING AND APPROVING ADDITION OF ORDINANCE REGARDING FUND BALANCE POLICY The City of Flat Rock Ordains: Section I. The Code of the City of Flat Rock is hereby amended by adding Section 2-4 to Chapter 2, Article I, which will read as follows: Sec. 2-4: Fund Balance Policy 1. PURPOSE: The purpose of this fund policy is to maintain an adequate level of financial resources to protect against the need to reduce service levels or raise taxes because of temporary revenue shortfalls or unpredicted one-time expenditures. 2. SCOPE: This policy shall apply to the City as a whole. 3.1 TARGET FUND BALANCES: 3.1.1 City Council shall establish and maintain minimum target fund balances as follows: 3.1.1.1 City Council shall hold fund balances of at least 30 percent and not more than 50 percent of General Fund expenses. General Fund expenses shall not include interfund activity (i.e., transfers out), or voluntary contributions to the City's other postemployment benefit trust or the City's pension system administered by Municipal mployees Retirement System of Michigan (MERS). 3.1.1.2. Debt Millage Service Funds shall hold fund balances equal to 2.25 percent of annual debt service obligations. 3.1.1.3 The Water and Sewer Fund shall hold an unrestricted net position of at least 35 percent of annual operating expenses. 3.1.1.4 In accordance with Michigan Public Act 2 of 1968, The Uniform Budgeting and Accounting Act, all other funds not specifically noted above shall maintain a fund balance of zero or greater. .2 FUND BALANCE USES: 3.2.1. City Council may use fund balances for the following purposes: 3.2.1.1 To cover unanticipated revenues shortfalls or expenditures (i.e. emergencies) 3.2.1.2 For one-time capital or non-recurring expenditures 3.2.1.3 To avoid short-term borrowings 3.2.2. In the event fund balances drop below minimum target levels, fund balances shall be restored as part of the following years budget, or, if not practically feasible, within three fiscal years of use. 3.2.2.1 A 12 month plan or a three-year plan to restore fund balances shall be created by management and approved by council as part of the subsequent years budget process when fund balances have been used that drop them below minimum target levels. 3.2.3 Use of fund balances in excess of maximum target levels, where no other council action governing their use exists, shall be as follows: 3.2.3.1 Additional contributions to the other post-employment benefits trust in amounts up to 100 percent of the fund's allocated share of the trust's annual required contribution as determined by the trust actuarial valuation. 3.2.3.2 Additional contributions to the City's pension system administered by the MERS n amounts up to 100 percent of the funds allocated share of the system's actuarial accrued liability (AAL) as determined by the annual MERS actuarial valuation. 3.2.3.3 Additional contributions to the City's capital improvement fund to finance future unforeseen capital equipment or infrastructure improvement/replacements. 3.2.4 In the event of unanticipated revenues shortfalls or expenditures that would cause fund balances to be used in a way that would cause them to fall below fund balance target levels, the following funds must be used first (and in the order presented): 3.2.4.1 Budgeted voluntary contributions to the other post-employment benefits trust. 3.2.4.2 Budgeted voluntary/accelerated contributions to the city's pension system administered by MERS in excess of the annual required contribution as determined by the annual MERS actuarial valuation. 3.2.4.3 Budgeted contributions to the capital improvement fund .2.4.4 Withdrawal of funds from the other post-employment benefits trust for the purpose of using such funds to pay for retiree healthcare expenses in lieu of using city funds to cover the cost of monthly premiums. 3.2.5 Throughout the course of the year, the city will spend fund balances on services or personnel that have a restricted funding source. When this occurs, the city considers restricted, committed, and/or assigned fund balances to have been spent before unassigned fund balances. 3.2.6 The City Council is the City of Flat Rock highest level of decision-making authority and therefore has the authority to commit fund balance within any fund via council resolution. 3.2.7 For assigned fund balances, the city council has delegated authority for establishing assigned fund balances to the City Treasurer. 4.0 DEFINITIONS: 4.1 FUND BALANCE - The funds as expressed on the modified accrual basis of accounting as required by the Government Accounting Standards Board (GASB), which the city holds at a given time that will be used on future obligations. In accordance with GASB, the General Fund and all other governmental funds must be reported on the modified accrual basis of accounting. 4.2 MINIMUM TARGET FUND BALANCE - The minimum level of reserves the city is attempting to hold in order to create a stable municipal environment, which encourages business and individual investment in all types of properties within the city. 4.3 MAXIMUM TARGET FUND BALANCE - The maximum level of reserves tthe city is attempting to hold in order to create a stable municipal environment, which encourages business and individual investment in all types of properties within the city. 4.4 NET POSITION -The funds as expressed on the full accrual basis of accounting as required by the Government Accounting Stands Board (GASB), which the city holds at a given time that will be used on future obligations. In accordance with GASB, all enterprise funds (such as the city's Water and Sewer Fund) must be reported on the full accrual basis of accounting. 4.5 ANNUAL REQUIRED CONTRIBUTION - Also known as the "ARC", this is amount of funds the city is required to contribute in order to meet future obligations as calculated by an actuarial. The ARC is comprised of two parts, (1) the normal cost, which is the cost for benefits attributable to the current year of service, and (2) an amortization payment, which is catch-up payment for past service costs to fund the unfunded actuarial accrued liability (UAAL) over a set period of time as defined by the actuarial valuation .6 ACTUARIAL ACCRUED LIABILITY - Also known as the "AAL" this is the present value of the projected benefits payable to retiree's plus a portion of expected benefits that have been earned by current employees but are not yet payable. 4.7 RESTRICTED FUND BALANCE - As defined by the Governmental Accounting Standards Board Statement Number 54, committed fund balances include amounts that can be spent only for specific purposes stipulated by the constitution, external resource providers, or through enabling legislation. 4.8 COMMITTED FUND BALANCE - As defined by the Governmental Accounting Standards Board Statement Number 54, assigned fund balance represents funds intended to be used by the city for specific purposes that do not meet the criteria to be classified as restricted or committed. 5.0 RESPONSIBILITIES: 5.1 The City Treasurer has the responsibility of monitoring fund balance levels and reviewing proposed budget amendments for potential fund balance shortfalls. 5.2 Council has the responsibility to review proposed budget amendments throughout the year as well as the triennial budget each year with these fund balance targets in mind. 6.0 PROCEDURES: 6.1 Each year, city management shall prepare the annual budget by setting fund balances to the levels prescribed in this policy. 6.2 A financial review shall be completed for each agenda item brought before council where the city's budget id impacted. This section shall be completed by the department head completing the agenda item and shall be reviewed by the City Treasurer. The review outlining any modifications to budgeted amounts, as approved by the City Treasurer, shall be outlined .6 ACTUARIAL ACCRUED LIABILITY - Also known as the "AAL" this is the present value of the projected benefits payable to retiree's plus a portion of expected benefits that have been earned by current employees but are not yet payable. 4.7 RESTRICTED FUND BALANCE - As defined by the Governmental Accounting Standards Board Statement Number 54, committed fund balances include amounts that can be spent only for specific purposes stipulated by the constitution, external resource providers, or through enabling legislation. 4.8 COMMITTED FUND BALANCE - As defined by the Governmental Accounting Standards Board Statement Number 54, assigned fund balance represents funds intended to be used by the city for specific purposes that do not meet the criteria to be classified as restricted or committed. 5.0 RESPONSIBILITIES: 5.1 The City Treasurer has the responsibility of monitoring fund balance levels and reviewing proposed budget amendments for potential fund balance shortfalls. 5.2 Council has the responsibility to review proposed budget amendments throughout the year as well as the triennial budget each year with these fund balance targets in mind. 6.0 PROCEDURES: 6.1 Each year, city management shall prepare the annual budget by setting fund balances to the levels prescribed in this policy. 6.2 A financial review shall be completed for each agenda item brought before council where the city's budget id impacted. This section shall be completed by the department head completing the agenda item and shall be reviewed by the City Treasurer. The review outlining any modifications to budgeted amounts, as approved by the City Treasurer, shall be outlined in a "finances section" within an agenda item brought before council. 6.3 Upon completion of the City's annual audit, the City Treasurer will present to the council a proposal for uses of excess fund balances if any exist. The proposal will be developed in accordance with section 3.2.3 under "Fund Balance Uses". 7.0 AUTHORITY: 7.1 This policy was adopted by City Council at a regular meeting on February 17, 2026. 8.0 REFERENCES: --Employees are not responsible for the information below8.1 The following references were utilized in preparation of this policy. 8.1.1 Michigan Public Act 2 of 1968. .1.2 Fund balance policy for the Eastpointe, Michigan. 8.1.3 Governmental Accounting Standards Board Statement Number 54. 8.1.4 Governmental Finance Officers Association (GFOA) Best Practice, Replenishing General Fund Balance. Approved by the GOFA executive board, February 2011. 8.1.5 Governmental Finance Officers Association (GFOA) Best Practice, Appropriate Level of Unrestricted Fund Balance in the General Fund. Approved by the GOFA executive board, October 2009. 9.0 REVISIONS: 9.1 This policy shall be reviewed every three years. 9.2 Revision history: 9.2.1 First issued March 1, 2026. (Ord. No. 471, 02-17-26-0 Section II. That all ordinances or parts of ordinances, the Code of the City of Flat Rock, or parts of the Code of the City of Flat Rock, not consistent herewith are hereby repealed. Section III. This ordinance shall be published in the News Herald newspaper as required by the er on the 6th day of October, 2026, but in no event shall be effective earlier than ten (10) days after enactment. Steven Beller, Mayor Rebecca Brogley, City Clerk