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HomeMy WebLinkAboutResolution No. 2015-C18RESOLUTION NO. 2015 -CIS A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF AZUSA ADOPTING AND APPROVING THE GENERAL FUND RESERVE POLICY WHEREAS, the City of Azusa ("City") desires to maintain current and comprehensive financial policies; and FTT.I WHEREAS, there is a need to formalize the policies regarding General Fund reserves; WHEREAS, the City desires to adopt a General Fund Reserve Policy (Attachment A); NOW, THEREFORE, BE IT RESOLVED THAT THE CITY COUNCIL OF THE CITY OF AZUSA DOES HEREBY: Section 1. Approve and adopt the General Fund Reserve Policy attached hereto as Attachment A; Section 2. Authorize City staff to take all actions necessary to carry out the Policy. PASSED, APPROVED and ADOPTED this 20`h day of April, 2015. oseph Romero Rocha Mayor ATTEST: MTfrW L Wrke Cornejo, rill City Clerk STATE OF CALIFORNIA ) COUNTY OF LOS ANGELES ) ss. CITY OF AZUSA ) I HEREBY CERTIFY that the foregoing Resolution No. 2015-C18 was duly adopted by the City Council of the City of Azusa at a regular meeting thereof, held on the 20` day of April, 2015, by the following vote of Council: AYES: COUNCILMEMBERS: GONZALES, CARRILLO, ALVAREZ, ROCHA NOES: COUNCILMEMBERS: NONE ABSENT: COUNCILMEMBERS: MACIAS APPROVED AS TO FORM: __ Marco A. Martinez Best B st & Krieger LP City Attorney GENERAL PUND RESERVE POLICY (See Attachment A) r_nrsyamiaa1ra CITY OF AZUSA GENERAL FUND RESERVE POLICY POLICY STATEMENT AND PURPOSE: It is the policy of the City of Azusa (City) to establish sound financial policies that are guidelines for prudent decision-making related to financial matters. The purpose of this policy is to establish a target minimum level of designated reserves in the General Fund to: • Reduce the risk of financial impacts resulting from a natural disasters or other catastrophic events; • Respond to the challenges of a changing economic environment, including prolonged downturns in the local, state, or national economy; • Demonstrate continued prudent fiscal management and creditworthiness; and • Provide funding stability for core services and infrastructure funded through the General Fund. BACKGROUND: General Fund reserves are classified into two categories: Restricted and Designated. Restricted reserves are those that are not considered available due to financial, accounting, or legal restrictions. Designated reserves are established by Council policy for an intended purpose and are available for use per Council direction. In addition, the Governmental Accounting Standards Board ("GASB") Statement No. 54 defines five specific classifications of fund balance. The five classifications are intended to identify whether the specific components of fund balance are available for appropriation and are therefore "Spendable." The classifications also are intended to identify the extent to which fund balance is constrained by special restrictions, if any. Al The five classifications are: CLASSIFICATIONS Non -spendable Restricted Committed Assigned Unassigned ATTACHMENT A NATURE OF RESTRICTION Cannot be readily converted to cash Externally imposed restrictions City Council imposed commitment City Manager assigned purpose/intent Residual balance not otherwise restricted Restricted Fund Balance Components: • Non -spendable — resources which cannot be spent because they are either a) not in spendable form or b) legally or contractually required to be maintained intact. • Restricted — resources with constraints placed on the use of resources which are either a) externally imposed by creditors (such as through debt covenants), grantors, contributors, or laws or regulations of other governments; or b) imposed by law through constitutional provisions or enabling legislation. Unrestricted Fund Balance Components: • Committed— resources which are subject to limitations the government imposes upon itself at its highest level of design making (City Council) and that remain binding unless removed in the same manner. • Assigned — resources neither restricted nor committed for which a government has a stated intended use as established by the City Council or a body or official (management) to which the City Council has delegated the authority to assign amounts for specific purposes. • Unassigned — resources which cannot be properly classified in one of the other four categories. The General Fund should be the only fund that reports a positive unassigned fund balance amount. GUIDING PRINCIPLES: Following sound financial practices and adhering to the Government Finance Officers' of American (GFOA) recommendations, the City's designated reserves include reserves for known and unknown contingencies, which take into consideration the: r_e ATTACH M ENT A • Diversity of revenue base • Cyclical nature of revenue • Changes in community priorities • Frequency of budget surpluses/deficits • Cash flow management practices POLICY: Reserve Levels The City will set aside funds into three (3) designated reserves to address unforeseen emergencies or disasters, significant changes in the economic environment, and key infrastructure and capital projects. These include the Catastrophic Reserve, Budget Stabilization Reserve, and Capital Assets and Infrastructure Replacement Reserve. The City commits to maintaining these reserves at a minimum of 15% of General Fund annual operating expenditures (minus one-time expenditures), divided between the Catastrophic Reserve (10%) and Budget Stabilization Reserve (5%), excluding the Capital Assets and Infrastructure Replacement Reserve. The General Fund Reserve Policy is reviewed by the City Council as part of the annual operating budget review and adoption process. Appropriations of any General Fund reserves require formal Council authorization. Should a catastrophic disaster or loss of a significant source of the City's property and sales tax revenue occur, the required reserve level should be adequate to meet the City's immediate financial needs. For example, in the event of natural disaster, the Catastrophic Reserve would provide necessary coverage for basic operating expenses for approximately 90 days, including salary and benefits for safety and non -safety City employees, while still meeting debt service obligations. This time frame would enable the City to explore other available cash alternatives. Likewise, should the City experience a loss of a primary property tax payer or sales tax contributor, the reserve level in the Budget Stabilization Fund would provide for a two-year transition period, giving the City adequate time to realign its operating costs with available resources, while minimizing service impacts. Key General Fund Designated Reserves Catastrophic Reserve. Funds reserved under this category shall be used to mitigate costs associated with unforeseen emergencies, including natural disasters or catastrophic events. Should unforeseen and unavoidable events occur that require the expenditure of City resources beyond those provided for in the annual budget, the City Manager or designee shall have authority to approve Catastrophic Reserve appropriations. The City Manager or designee shall then present to the City Council a A3 ATTACHMENTA budget amendment confirming the nature of the emergency and authorizing the appropriation of reserve funds. Budget Stabilization Reserve. Funds reserved under this category shall be used to mitigate, should they occur, annual budget revenue shortfalls (actual revenues less than projected revenues) due to changes in the economic environment and/or one-time expenditures that will result in future efficiencies and/or budgetary savings. Examples of "economic triggers' and one-time uses include, but are not limited to: • Significant decrease in property or sales tax, or other economically sensitive revenues; • Loss of businesses considered to be significant sales tax generators; • Reductions in revenue due to actions by the state/federal government; • Workflow/technical system improvements to reduce ongoing, personnel costs and enhance customer service; • One-time maintenance of service levels due to significant economic/budget constraints; and • One-time transitional costs associated with organizational restructuring to secure long-term personnel cost savings. Capital Assets and Infrastructure Replacement Reserve. The City will maintain a Reserve for Capital Assets and Infrastructure Replacement. After allocating General Fund balance to the Budget Stabilization Reserve and City Council designated projects and purposes, any remaining fund balance shall be apportioned to the Reserve for Capital Assets and Infrastructure Repair and Replacement as follows: 60% to Streets and 40% to Other Capital Assets and Infrastructure. It is the long-term goal of the City to build and maintain this reserve in an amount equal to the estimated replacement cost of all City capital assets at the end of their design life and to use this reserve for such replacement. Replenishment of Unreserved Fund Balance In keeping with the principles discussed in this policy, when either fund is used, City Council will develop a one (1) to five (5) year reserve replenishment plan to meet the minimum threshold of 15% of General Fund ongoing, operating expenditures, excluding one-time expenditures. Excess Fund Balance At the end of each fiscal year, the Finance Department reports on the audited year-end budgetary fiscal results. Should actual General Fund revenues exceed expenditures and encumbrances, a year-end operating surplus shall be reported. Any year-end surplus that results in the General Fund fund balance exceeding the level required by the reserve policy shall be available for allocation for the following, subject to Council approval: A4 ATTACHMENT A • Offset projected future deficits • Anticipated intergovernmehtal fiscal impacts • One-time funding, non-recurring needs • Loan repayment acceleration Upon funding of the above, any remaining surplus balances shall be divided equally - between the Budget Stabilization Reserve and Capital Assets and Infrastructure Replacement for appropriation. A5