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A Motion to Discuss the Investment, Fund Balance, Improper Payment, Debt Management, and Purchasing and Credit Card Policies and to Review the Associated Investment Operations Standard Operating Procedure (SOP)
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Introduction
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The Finance Committee is asked to review a coordinated package of five financial governance policies and the associated Investment Policy implementation SOP and recommend the five policies to the Village Board for adoption.
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Recommended Action
Staff recommends that the Finance Committee recommend Village Board adoption of the Investment Policy, Fund Balance Policy, Improper Payment Policy, Debt Management Policy, and Purchasing and Credit Card Policy. The Committee is also asked to review and provide feedback on the Cash Management and Investment Operations SOP, which is an administrative implementation document to be approved by the Village Manager following adoption of the Investment Policy.
Prior Board Action
Relevant prior Board and Finance Committee actions and existing policy history include:
• Investment Policy: The Finance Committee reviewed the proposed Investment Policy on August 6, 2026, including sustainability, Village values, transparency, and implementation. The revised policy and associated SOP return in response to that discussion. The Village previously had an investment policy in draft form, but it had not been formally adopted by the Village Board.
• Fund Balance: The Village's current fund balance framework is reflected in the ACFR, which is presented annually to the Village Board. The ACFR establishes a 10%-20% target for unassigned General Fund balance and delegates authority to assign fund balance to the CFO. The proposed policy expands this existing framework into a standalone, Village-wide reserve policy.
• Debt Management: The Village Board has regularly acted on debt through individual borrowing authorizations, bond ordinances, annual budget and tax levy actions, and review of the Village's multiyear financing plans. The proposed policy consolidates these practices and affordability measures into a comprehensive standalone Debt Management Policy.
• Purchasing and Credit Card Policy: The Village currently operates under an existing Credit Card Policy governing card use, limits, administration, documentation, reconciliation, and annual Board review. The proposed policy replaces and modernizes that framework in advance of changes to the Village's P-Card program.
• Improper Payment Policy: There is no prior Board action associated with this policy. It is being brought forward to address HUD requirements applicable to the Village’s administration of HUD funds.
Background
This item is a core financial governance and stewardship priority. The five policies are being presented as one coordinated package because they address related elements of fiscal sustainability, internal control, regulatory compliance, long-range financial planning, and transparency. The package also allows the Finance Committee to consider how the Village's existing practices compare with the more comprehensive standards proposed for future administration.
The Investment Policy is a follow-up to the Finance Committee's August 6, 2026 discussion. The Fund Balance and Debt Management policies address financial-policy areas emphasized during the Village's recent debt and rating discussions. The Improper Payment Policy is required for administration of HUD funding and will be implemented jointly by Finance and Neighborhood Services. The Purchasing and Credit Card Policy prepares the Village for anticipated changes to the P-Card program and a more modern card-management platform.
Current Framework Compared with Proposed Policies
1. Investment Policy and Cash Management and Investment Operations SOP
Current framework: The Village does not currently have a formally adopted Board Investment Policy. Staff began developing a draft policy in 2025, and current cash and investment activities have been administered through applicable Illinois law, existing banking arrangements, internal controls, and Finance Department practices. The August 6 Finance Committee discussion focused on how to incorporate sustainability, Village values, transparency, and a workable process for reviewing or reducing exposure to institutions or investments that conflict with those values.
Proposed framework: The policy would become the Village's first formally adopted Investment Policy and retains Legality, Safety, Liquidity, and Yield as the governing priorities. It adds explicit sustainability and Village-values considerations, including racial and economic justice, human rights and equality, public health and safety, peace and humanitarian responsibility, environmental sustainability, and ethical governance. The accompanying SOP converts those policy objectives into operating controls, including institution eligibility and scoring, exclusion and watch-list procedures, FDIC and collateral monitoring, cross-provider exposure tracking, provider compliance matrices, maturity and portfolio management, and expanded public reporting.
To test the practicality of the proposed SOP, Finance requested operational feedback from Huntington Bank, the Village's primary banking partner, regarding provider controls, deposit-network data, FDIC exposure monitoring, reporting, and implementation requirements. Relevant operational feedback was incorporated where appropriate, while policy judgments and approval authority remain with the Village. This review was operational due diligence on the draft SOP and was not a procurement evaluation or recommendation regarding future banking services.
2. Fund Balance Policy
Current framework: The Village's current fund balance framework is reflected in the ACFR and provides the GASB 54 classifications, delegates assignment authority to the CFO, establishes a spending order, and sets a General Fund unassigned fund balance target of 10% to 20%. The current framework does not establish a comprehensive reserve methodology for the Village's enterprise, capital, replacement, debt service, grant, or internal service funds.
Proposed framework: The proposed policy establishes a 16.67% General Fund minimum/floor, a 20% operating target, and a 25% upper review threshold, together with separate liquidity monitoring, annual risk assessment, standards for use and replenishment, and Board review of balances above or below the policy range. It also creates fund-specific reserve standards, including at least 90 days of normal operating working capital for Water and Sewer and Parking, and risk-based approaches for capital, replacement, debt service, grant, self-insurance, employee health, and other funds.
The City of Evanston's January 2026 peer comparison provides useful context. It identified Oak Park's current General Fund target as 10% to 20%, with no stated Capital Fund or Water Fund reserve target in the comparison and fixed-dollar insurance reserve amounts. The same comparison showed General Fund policies of 16.6% in Evanston, 25% in Arlington Heights, Park Ridge, Skokie, and Des Plaines, 25% to 33.33% in Palatine, 25% with a 30% target in Wilmette, and 20% in Naperville. Evanston also maintains a 25% Capital Fund standard based on non-debt-funded expenses and a Water Fund standard of 16.6% of operating expenses plus amounts sufficient for debt requirements. The proposed Oak Park framework therefore moves the Village from a relatively narrow General Fund range to a more complete, risk-based reserve structure while remaining within the range of peer practices reviewed by Evanston.
3. Improper Payment Policy
Current framework: The Village has financial, grant, purchasing, and payment controls, but the materials reviewed do not contain a comparable standalone policy specifically addressing improper payments for HUD-funded programs.
Proposed framework: The new policy establishes a HUD-focused framework to prevent, identify, report, and correct improper payments, including overpayments, underpayments, duplicate payments, payments to ineligible recipients, and payments for ineligible goods or services. Programmatic responsibilities will be administered with Neighborhood Services, while Finance will administer financial-management controls, monitoring, training, and corrective processes.
4. Debt Management Policy
Current framework: The Village currently manages debt through applicable law, bond ordinances and resolutions, financing plans, annual tax levy and budget decisions, transaction-specific Board approvals, and advice from the Village's municipal advisor, bond counsel, and other professionals. Recent Finance Committee debt-planning work also identified the value of formal debt and reserve policies as part of maintaining the Village's financial strength and AA credit profile.
Proposed framework: The proposed policy consolidates these practices into a single comprehensive debt framework. It establishes a 25% Debt and Liability Carrying Charge Ratio as an upper financial planning guardrail (25% of Governmental Revenues), measured as annual governmental debt service and applicable recurring fixed liabilities divided by adjusted governmental revenues. It also establishes affordability analysis for new borrowing, useful-life and amortization standards, criteria for competitive versus negotiated sales, a general 3% net present value savings standard for economic refundings, post-issuance compliance requirements, and an annual Debt Management Report.
The 25% guardrail is consistent with the upper guardrail discussed by the Village's municipal advisors during the June 18, 2026 Finance Committee debt-planning presentation. It is not a target or legal debt limit; the policy requires additional analysis and written findings if a financing would cause the projected ratio to exceed the guardrail.
5. Purchasing and Credit Card Policy
Current framework: The existing two-page Credit Card Policy is primarily written for certain management-level employees. It requires Village business use, cardholder agreements, receipts, and monthly reconciliation, establishes monthly limits through the Village Manager, designates the Village Manager and Deputy Village Manager as program administrators, and provides for suspension or revocation for delinquent reconciliation.
Proposed framework: The proposed policy creates a more comprehensive, provider-neutral Village Card program that can accommodate purchasing cards, department cards, travel cards, virtual cards, and other electronic payment methods. It assigns program administration to the CFO or designee, requires documented operational need, expands transaction and merchant controls, strengthens reconciliation and independent approval, addresses cards issued to elected officials and others outside the Village Manager's supervisory chain, and establishes monitoring, audit, transparency, security, corrective-action, and administrative-procedure requirements. The policy is designed so future provider or platform changes can be implemented administratively without repeatedly rewriting Board policy.
Timing Considerations
The Investment Policy is returning promptly following the August 6 Finance Committee discussion so the Committee's feedback can be incorporated into a final recommendation to the Village Board. If adopted, the Investment Operations SOP provides for phased implementation over up to 180 days to inventory accounts, complete institution and provider reviews, establish exposure and exclusion controls, test configurations, and transition placements as maturities and liquidity permit.
Adoption of the Fund Balance and Debt Management policies before completion of the FY2027 budget and future debt issuances will allow those standards to be integrated into budget, reserve, levy, borrowing, and rating-agency discussions. The Improper Payment Policy should be adopted promptly to support HUD program compliance, and the Purchasing and Credit Card Policy should be in place before material P-Card platform or provider changes are implemented.
Financial Impact
There is no immediate budget appropriation associated with adoption of these policies. The policies establish governance standards and do not, by themselves, authorize an investment transaction, use of fund balance, debt issuance, card expenditure, transfer, or other expenditure.
Future financial effects will depend on decisions made under the policies. Investment exclusions or provider changes could affect interest earnings, fees, liquidity, or transaction timing; fund balance standards may influence future use or retention of reserves; debt guardrails may affect financing structures and borrowing capacity; and future P-Card provider changes may affect fees, rebates, and administrative costs. Any material financial action would continue to follow the Village's normal budget, procurement, contracting, and Board-approval requirements.
Operations Impact
Implementation will increase recurring Finance Department governance and reporting responsibilities but is designed to be incorporated into existing core financial-management functions. No additional positions are requested as part of this item.
• Investment: Maintain provider compliance matrices, institution scorecards, exclusion and watch lists, exposure monitoring, cash forecasting, maturity strategies, and monthly public reporting; implementation will be phased over up to 180 days.
• Fund Balance: Prepare an annual Fund Reserve Schedule, monitor General Fund and enterprise-fund reserve measures, and prepare replenishment or excess-balance recommendations when required.
• Improper Payments: Finance and Neighborhood Services will coordinate programmatic controls, financial controls, monitoring, training, and corrective action for applicable HUD programs.
• Debt: Maintain annual affordability analysis, debt schedules, post-issuance compliance, and an annual Debt Management Report.
• Village Cards: Finance will maintain card inventory, limits, controls, training, reconciliation standards, monitoring, and provider-specific procedures as the P-Card system evolves.
Future banking-services procurement decisions are separate from adoption of the policy framework and can be scoped and scheduled based on operational readiness, implementation needs, and available staff capacity.
DEI Impact
The most direct DEI component is contained in the Investment Policy and SOP, which establish a structured process for considering racial and economic justice, community reinvestment, human rights and equality, LGBTQ+ rights, public health and safety, environmental sustainability, and institutional diversity when those considerations are legally permissible, supported by reliable information, and consistent with financial prudence.
The remaining policies are primarily financial-governance and internal-control measures rather than direct programmatic DEI initiatives. Their broader purpose is to strengthen fiscal stability, accountability, and stewardship so that public resources remain available for Village services and priorities. The Improper Payment Policy also establishes consistent controls for HUD-funded programs administered in collaboration with Neighborhood Services.
Community Input
The Investment Policy has received the most direct Board and community input. Trustee Eder requested Finance Committee review, and residents submitted information regarding Village investment and banking arrangements. The Finance Committee discussed the policy publicly on August 6, 2026, and the revised policy and SOP respond to that discussion.
The Fund Balance and Debt Management policies were informed by professional standards, peer practices, the Village's recent debt-planning work, and rating-agency considerations. The Fund Balance Policy also incorporates Evanston's January 2026 peer comparison. The Improper Payment Policy is driven by HUD compliance requirements, and the Purchasing and Credit Card Policy was developed from the Village's current policy and anticipated P-Card operating needs. No separate Village-wide public engagement process was conducted for those four policies beyond the Finance Committee review process.
Staff Recommendation
Staff recommends that the Finance Committee recommend Village Board adoption of all five policies as a coordinated financial-governance package and provide any final feedback on the Investment Operations SOP. The SOP should remain an administrative document approved by the Village Manager so that operational controls can be maintained and updated without requiring a Board policy amendment for routine implementation changes.
Advantages:
• Closes significant policy and internal-control gaps by formalizing standards for investments, reserves, debt, improper payments, and Village Cards.
• Addresses financial-policy areas emphasized in recent debt and rating discussions and creates repeatable annual reporting for reserves and debt affordability.
• Responds to the August 6 Finance Committee investment discussion with a values-based framework that remains subordinate to legality, safety, liquidity, and financial prudence.
• Satisfies the HUD-related improper payment requirement and establishes shared Finance/Neighborhood Services responsibilities.
• Creates a provider-neutral card framework in advance of P-Card modernization and future provider changes.
Disadvantages:
• Implementation creates additional recurring monitoring, documentation, reporting, training, and review work for Finance and affected departments.
• Formal reserve and debt guardrails may reduce short-term flexibility or require explicit Board exceptions when circumstances warrant a departure from policy.
• Investment screening, exclusions, and provider controls may reduce available options or affect timing, fees, liquidity, or yield in some circumstances
Alternatives
Alternative 1: Advance only the Investment and Improper Payment policies and defer the Fund Balance, Debt Management, and Purchasing and Credit Card policies for additional review.
Advantages:
• Reduces the number of policies being implemented simultaneously and lowers the immediate administrative workload.
• Provides additional time for benchmarking and refinement of the non-mandatory policies.
Disadvantages:
• Leaves identified reserve, debt, and card-governance gaps unresolved during FY2027 budget development, future borrowing, and P-Card changes.
• Separates policies that were intentionally developed as an integrated financial-governance framework.
Alternative 2: Defer the entire package for additional external review, provider consultation, or future procurement activity.
Advantages:
• Provides more time for external input and allows future procurement planning to proceed before implementation details are finalized.
• Defers near-term implementation workload.
Disadvantages:
• Delays the response to the August 6 Finance Committee investment discussion and delays adoption of the HUD-related Improper Payment Policy.
• Delays formal reserve and debt policies that can support upcoming budget, financing, and rating-agency discussions.
• Ties policy governance to procurement timing even though the proposed policies are designed to remain provider-neutral and can be adopted independently of a future banking or card-services procurement.
Anticipated Future Actions
Staff anticipates the following future actions:
• Present the five policies to the Village Board for consideration following a Finance Committee recommendation.
• Following Investment Policy adoption, obtain Village Manager approval of the Investment Operations SOP and begin the phased implementation process, with a target of up to 180 days.
• Incorporate the Fund Reserve Schedule and Debt Management Report into the FY2027 budget and long-range financial planning cycle.
• Implement the Improper Payment Policy jointly with Neighborhood Services for applicable HUD-funded programs.
• Develop and update provider-specific P-Card administrative procedures, training, limits, and system controls as card-program changes are implemented.
• Separately evaluate the scope and timing of future banking-services procurement as operational capacity and implementation readiness allow.
Prepared By: Louis Hall-Makarewicz, Deputy Chief Financial Officer
Reviewed By: Kevin Bueso, Chief Financial Officer
Approved By: Kevin J. Jackson, Village Manager
Attachment(s):
1. Proposed Investment Policy
2. Draft Cash Management, Financial Institution Evaluation and Investment Operations SOP
3. Proposed Fund Balance Policy
4. City of Evanston January 2026 Fund Balance Peer Comparison Table
5. Proposed Improper Payment Policy
6. Proposed Debt Management Policy
7. Proposed Purchasing and Credit Card Policy
8. Current Credit Card Policy
9. Current Fund Balance Policy / ACFR Excerpt
10. Presentation