HomeMy WebLinkAboutD-02 Staff Report -Updated General Fund Reserve PolicySCHEDULED ITEM
D-2
TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
VIA: SERGIO GONZALEZ, CITY MANAGER
FROM: TALIKA M. JOHNSON, DIRECTOR OF FINANCE
DATE: JUNE 18, 2018
SUBJECT: ADOPTION OF RESOLUTION REVISING GENERAL FUND RESERVE POLICY
BACKGROUND:
In order to make prudent decisions related to financial matters, it is critical the City have sound financial
policies in place. In April 2015, the City adopted a General Fund Reserve Policy. In light of evolving
economic constraints on the General Fund Budget and potential areas of financial exposure, Staff is
seeking approval to expand the current Reserve Policy to include additional reserves. The recommended
action requests adoption of a revised General Fund Reserve Policy to include four (4) internally
restricted reserve accounts: Budget Stabilization and Catastrophic Event Reserve, Capital Assets and
Infrastructure Replacement Reserve, Insurance Reserve, and Retiree Benefits Reserve.
RECOMMENDATION:
Staff recommends the City Council take the following actions:
1) Approve Resolution No. 2018-C45 adopting a revised General Fund Reserve Policy.
ANALYSIS:
One of the benchmarks used to assess the General Fund’s progress toward financial sustainability is the
General Fund Reserve Policy, adopted in April 2015. In an effort to evaluate and formalize the City’s
current General Fund Reserve Policy, staff undertook a review of policies adopted by other cities. In
addition, recommendations from the Government Finance Officers’ Association (GFOA) “best practices
in budgeting” were considered in the development of the current policy.
While specific reserve policy “targets” vary across cities, several elements appear in numerous adopted
policies, consistent with best practices and prudent fiscal management. Individual community
APPROVED
CITY COUNCIL
6/18/2018
Revised General Fund Reserve Policy
June 18, 2018
Page 2
circumstances and characteristics greatly influence actual reserve level targets; however the following
are some of the common themes found in many well-written reserve policies:
• Reserves acts as a “risk management” tool
• Reserves provides a “buffer” against revenue fluctuations inherent in economic cycles
• Prohibition of use of reserve funds for ongoing operating expenditures
• Guidelines for use of reserve funds
• Guidelines for replenishment of reserve funds, as needed
• Regular review of reserve policy and reserve levels
Council agreed the City needed to set aside funds to address unforeseen emergencies or disasters,
significant changes in the economic environment, and key infrastructure and capital projects, and
therefore, adopted the current Reserve Policy to set a minimum target of 15% of General Fund annual
operating expenditures (less one-time expenditures).
The City’s 15% reserve target for Fiscal Year 2018/19 (“FY 18/19) is approximately $6.4 million based
on a $42.5 million budget. The FY 18/19 budget is expected to provide for an uncommitted fund balance
of $11.1 million by the end of the year or a 26.1% reserve level. This level of reserves is largely due to
significant one-time revenues generated by property sales in fiscal years 16/17, 17/18 and projected in
18/19.
While the City’s current reserve levels are healthy and above the 15% target, additional reserves need to
be restricted to address some of the City’s long-term financial liabilities and potential areas of financial
exposure, such as claims expenses, aged infrastructure, and rising retiree benefits. Therefore, in
conjunction with the Fiscal Year 2018/19 budget adoption process, Staff recommended the City Council
consider adoption of a revised General Fund Reserve Policy to include the reserve categories shown in
Table 1 below.
Table 1 – General Fund Internally Restricted Reserves and Funding Levels
CATEGORY PURPOSE ANNUAL RESERVE TARGET
Budget Stabilization and
Catastrophic Event Reserve
To mitigate costs due to annual
budget revenue shortfalls as a
result of changes in economic
environment and/or one-time
expenditures and unforeseen
emergencies or catastrophic events
15% of General Fund Annual
Operating Expenditures (less
one-time expenditures)
Capital Assets & Infrastructure
Replacement Reserve
To use for replacement of capital
assets and infrastructure such as
facilities, IT upgrades, and fleet
operations
$1,500,000 seed with
replenishments to minimum
of $1M or capital and
infrastructure replacement
value at end of asset life
Insurance Reserve To fund unanticipated liability and
worker’s compensation claims up
to City’s $250K SIR per claim
$1,000,000 seed with
replenishments to $1.0M
level
Revised General Fund Reserve Policy
June 18, 2018
Page 3
Retiree Benefits To mitigate impacts on City’s
future budgets due to rising retiree
benefit costs (pension and
medical) and reduce current
$100+M long-term liabilities for
these benefits
$1,500,000 seed to
implement a program to
address unfunded retirement
liabilities and subsequent
annual contributions of up to
$1,500,000 or appropriate
levels as recommended by
plan consultant and policy
direction from City Council
The following table summarizes the recommended reserve levels Staff made to the City Council as part
of the FY 18/19 budget adoption process.
Table 2 – Summary of FY 2018/19 Proposed General Fund Internally Restricted Reserves
Budget
Stabilization &
Catastrophic
Event (15%)
Capital and
Infrastructure
Replacement Insurance Retiree Benefits
Total Internally
Restricted
Reserves
FY 18/19 Beginning Balance:6,373,075$ 1,500,000$ 1,000,000$ 1,500,000$ 10,373,075$
Less: FY 18/19 Uses (690,484) (690,484)
FY 18/19 Ending Balance:6,373,075$ 809,516$ 1,000,000$ 1,500,000$ 9,682,591$
The General Fund Reserve Policy will be reviewed by the City Council as part of the annual operating
budget review and adoption process. Appropriations of any General Fund internally restricted reserves
require formal Council authorization.
FISCAL IMPACT:
There is no impact associated with the recommended action. Reserve designation recommendations
have been considered with the Fiscal Year 2018/19 budget review and adoption process.
Prepared by: Reviewed and Approved:
Talika M. Johnson Sergio Gonzalez
Director of Finance City Manager
Attachments:
1) Resolution No. 2018-C45, A Resolution of the City Council of the City of Azusa adopting a
revised General Fund Reserve Policy.
2)Attachment A – General Fund Reserve Policy (clean version)
3)Attachment B – General Fund Reserve Policy (redlined version)
RESOLUTION NO. 2018-C45
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF AZUSA
ADOPTING A REVISED GENERAL FUND RESERVE POLICY
WHEREAS, the City of Azusa (“City”) desires to maintain current and comprehensive financial policies;
and
WHEREAS, the City adopted a formal General Fund Reserve Policy on April 20, 2015; and
WHEREAS, there is a need to revise the General Fund Reserve policy to include additional reserve
categories; and
WHEREAS, the City desires to adopt a General Fund Reserve Policy (Attachment A);
THE CITY COUNCIL OF THE CITY OF AZUSA DOES RESOLVE AS FOLLOWS:
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.
SECTION 3. The City Clerk shall certify as to the adoption of this resolution.
PASSED, APPROVED and ADOPTED this 18th day of June, 2018.
___________________________________________
Joseph Romero Rocha
Mayor
ATTEST:
___________________________________________
Jeffrey Lawrence Cornejo Jr.
City Clerk
STATE OF CALIFORNIA )
COUNTY OF LOS ANGELES ) ss.
CITY OF AZUSA )
I HEREBY CERTIFY that the foregoing Resolution No. 2018-C45 was duly adopted
by the City Council of the City of Azusa at a regular meeting held on the 18th day of June 2018,
by the following vote of the Council:
Attachment 1
AYES: COUNCILMEMBERS:
NOES: COUNCILMEMBERS:
ABSTAIN: COUNCILMEMBERS:
ABSENT: COUNCILMEMBERS:
________________________________
Jeffrey Lawrence Cornejo, Jr.
City Clerk
APPROVED AS TO FORM:
___________________________________________
Best Best & Krieger, LLP
City Attorney
Revised 6-18-18
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.
The five classifications are:
CLASSIFICATIONS NATURE OF RESTRICTION
Non-spendable Cannot be readily converted to cash
Restricted Externally imposed restrictions
Attachment 2
Revised 6-18-18
Committed City Council imposed commitment
Assigned City Manager assigned purpose/intent
Unassigned 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:
Diversity of revenue base
Cyclical nature of revenue
Changes in community priorities
Frequency of budget surpluses/deficits
Cash flow management practices
Revised 6-18-18
POLICY:
General Fund Internally Restricted Reserves and Funding Levels
The City will set aside funds into four (4) designated reserves to address unforeseen emergencies
or disasters, significant changes in the economic environment, and key infrastructure and capital
projects. These include the Budget Stabilization and Catastrophic Event Reserve, Capital Assets
and Infrastructure Replacement Reserve, Insurance Reserve, and Retiree Benefits Reserve.
Budget Stabilization and Catastrophic Event 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 or increases in expenditures due to actions by the state/federal
government;
Workflow/technical system improvements to reduce ongoing, personnel costs and
enhance customer services;
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.
Funds reserved under this category shall also be used to mitigate costs associated with
unforeseen emergencies, including natural disasters or catastrophic events. 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, this 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 and Catastrophic Event 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.
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 appropriations from the Budget Stabilization and Catastrophic Event
Revised 6-18-18
Reserve. The City Manager or designee shall then present to the City Council for authorization a
budget amendment detailing the nature of the emergency or economic event triggering the
appropriation of the reserve funds.
The City’s minimum funding target for the Budget Stabilization and Catastrophic Event Reserve
is set to 15% of the General Fund annual operating expenditures (minus one-time expenditures).
After allocating a minimum of 15% of the General Fund fund balance to the Budget Stabilization
and Catastrophic Event Reserve, the City Manager or designee will recommend to City Council
options for funding the remaining three (3) reserve accounts during the annual budget review and
adoption process based on funds availability and assessed needs at that time.
Capital Assets and Infrastructure Replacement Reserve. The City will maintain a Reserve for
Capital Assets and Infrastructure Replacement. These reserves will be utilized to make major
capital asset purchases such as information technology upgrades, fleet vehicles, and various
equipment. Additionally, this reserve will be utilized to make improvements to and replacement
of City buildings and infrastructure. Recommendations for use of these reserves will be made
during the annual budget review and adoption process.
This Reserve will be initially funded at $1,500,000 beginning with the adoption of the Fiscal
Year 2018/19 budget. It is the long-term goal of the City to build and replenish this reserve in an
amount equal to the minimum of $1,500,000 annually or the estimated replacement cost of all
City capital assets at the end of their design life and to use this reserve for such replacements.
Insurance Reserve. The City will maintain a Reserve for Liability and Worker’s Compensation
insurance claims. The City currently has a $250,000 Self-Insured Retention (SIR) for both
insurance programs. This means, the City is responsible for the first $250,000 of all insurance
claims, per claim, before the City’s insurance provider(s) will take on claim costs over the SIR.
While the City does place into its annual budget some amounts for claims expenses, there is no
way to predict if/when claims will be filed that incur costs beyond the City’s adopted budget.
This reserve will provide set aside funding in the event claims expenses need to be paid above
what the City anticipated during the annual budget review and adoption process.
This Reserve will be initially funded at $1,000,000 beginning with the adoption of the Fiscal
Year 2018/19 budget. It is the goal of the City to maintain this reserve annually at the $1,000,000
level. Settlements of claims above the City Manager’s approval authority will still be brought
before the City Council for approval. At that time, the City Manager or designee will report to
Council whether the claims settlement will be covered by the budgeted claims appropriations or
this reserve, or a portion thereof.
Retiree Benefits Reserve. The City will maintain a Reserve for the funding of its long-term
Retiree Benefits liabilities, such as pension and other-post-employment costs. Rising pension and
medical costs places a constraint on the City’s annual budget. In order to mitigate the impacts on
the City’s future budgets due to rising retiree benefits costs, funds are being set aside to pay for
increased pay-as-you outlays, establish interest bearing trust accounts to be used in the event the
City has trouble meetings its annual outlays for such benefits, or to be utilized to establish
programs that will reduce the City’s long-term financial exposure for retiree benefits.
Revised 6-18-18
This reserve will be initially funded at $1,500,000 beginning with the adoption of the Fiscal Year
2018/19 budget. It is the goal of the City to maintain this reserve annually at the $1,500,000
level. Future funding and uses of this reserve will be reviewed annually and recommendations
for additional set aside amounts will be made each year by the City Manager or designee to the
City Council during the budget review and adoption process subject to overall funds availability.
The General Fund Reserve Policy, comprising of the four (4) Reserves is reviewed by the City
Council as part of the annual budget review and adoption process. Appropriations of any General
Fund internally restricted reserves require formal Council authorization.
Replenishment of Budget Sustainability and Catastrophic Event Reserves
In keeping with the principles discussed in this policy, when the Budget Sustainability and
Catastrophic Event Reserves is used, City Council will develop a one (1) to five (5) year reserve
replenishment plan to meet the minimum threshold of the Budget Sustainability and Catastrophic
Event Reserves, amounting to 15% of the General Fund’s ongoing, operating expenditures prior
to replenishing the other reserve funds.
Excess Fund Balance
At the end of each fiscal year, the Finance Department reports on the audited year-end financial
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 minimum Budget Sustainability and Catastrophic Event Reserve
level required by this reserve policy shall be available for allocation for the following, subject to
Council approval:
Offset projected future deficits
Anticipated intergovernmental fiscal impacts
One-time funding, non-recurring needs
Loan repayment acceleration
Upon funding of the above, the division of remaining surplus balances shall be recommended to
the City Council by the City Manager or designee, between the Capital Assets and Infrastructure
Replacement, Insurance, and Retiree Benefits Reserves, based on most critical needs at that time.
Revised 6-18-18
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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.
The five classifications are:
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Attachment 3
Revised 6-18-18
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CLASSIFICATIONS NATURE OF RESTRICTION
Non-spendable Cannot be readily converted to cash
Restricted Externally imposed restrictions
Committed City Council imposed commitment
Assigned City Manager assigned purpose/intent
Unassigned 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:
Diversity of revenue base
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Cyclical nature of revenue
Changes in community priorities
Frequency of budget surpluses/deficits
Cash flow management practices
POLICY:
General Fund Internally Restricted Reserves and Funding Levels
Reserve Levels
The City will set aside funds into fourthree (43) designated reserves to address unforeseen
emergencies or disasters, significant changes in the economic environment, and key
infrastructure and capital projects. These include the Catastrophic Budget Stabilization and
Catastrophic Event Reserve, Budget Stabilization Reserve, and Capital Assets and Infrastructure
Replacement Reserve, Insurance Reserve, and Retiree Benefits Reserve.
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 budget amendment confirming the nature of the emergency
and authorizing the appropriation of reserve funds.
Budget Stabilization and Catastrophic Event 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 or increases in expenditures due to actions by the state/federal
government;
Workflow/technical system improvements to reduce ongoing, personnel costs and
enhance customer services;
One-time maintenance of service levels due to significant economic/budget
constraints; and
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Revised 6-18-18
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One-time transitional costs associated with organizational restructuring to secure
long-term personnel cost savings.
Funds reserved under this category shall also be used to mitigate costs associated with
unforeseen emergencies, including natural disasters or catastrophic events. 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, this 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 and Catastrophic Event 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.
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 appropriations from the Budget Stabilization and Catastrophic Event
Reserve. The City Manager or designee shall then present to the City Council for authorization a
budget amendment detailing the nature of the emergency or economic event triggering the
appropriation of the reserve funds.
The City’s minimum funding target for the Budget Stabilization and Catastrophic Event Reserve
is set to 15% of the General Fund annual operating expenditures (minus one-time expenditures).
After allocating a minimum of 15% of the General Fund fund balance to the Budget Stabilization
and Catastrophic Event Reserve, the City Manager or designee will recommend to City Council
options for funding the remaining three (3) reserve accounts during the annual budget review and
adoption process based on funds availability and assessed needs at that time.
Capital Assets and Infrastructure Replacement Reserve. The City will maintain a Reserve for
Capital Assets and Infrastructure Replacement. These reserves will be utilized to make major
capital asset purchases such as information technology upgrades, fleet vehicles, and various
equipment. Additionally, this reserve will be utilized to make improvements to and replacement
of City buildings and infrastructure. Recommendations for use of these reserves will be made
during the annual budget review and adoption process.
This Reserve will be initially funded at $1,500,000 beginning with the adoption of the Fiscal
Year 2018/19 budget. 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 maintainreplenish this reserve in an amount equal to the minimum
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of $1,500,000 annually or the estimated replacement cost of all City capital assets at the end of
their design life and to use this rreserve for such replacements.
Insurance Reserve. The City will maintain a Reserve for Liability and Worker’s Compensation
insurance claims. The City currently has a $250,000 Self-Insured Retention (SIR) for both
insurance programs. This means, the City is responsible for the first $250,000 of all insurance
claims, per claim, before the City’s insurance provider(s) will take on claim costs over the SIR.
While the City does place into its annual budget some amounts for claims expenses, there is no
way to predict if/when claims will be filed that incur costs beyond the City’s adopted budget.
This reserve will provide set aside funding in the event claims expenses need to be paid above
what the City anticipated during the annual budget review and adoption process.
This Reserve will be initially funded at $1,000,000 beginning with the adoption of the Fiscal
Year 2018/19 budget. It is the goal of the City to maintain this reserve annually at the $1,000,000
level. Settlements of claims above the City Manager’s approval authority will still be brought
before the City Council for approval. At that time, the City Manager or designee will report to
Council whether the claims settlement will be covered by the budgeted claims appropriations or
this reserve, or a portion thereof.
Retiree Benefits Reserve. The City will maintain a Reserve for the funding of its long-term
Retiree Benefits liabilities, such as pension and other-post-employment costs. Rising pension and
medical costs places a constraint on the City’s annual budget. In order to mitigate the impacts on
the City’s future budgets due to rising retiree benefits costs, funds are being set aside to pay for
increased pay-as-you outlays, establish interest bearing trust accounts to be used in the event the
City has trouble meetings its annual outlays for such benefits, or to be utilized to establish
programs that will reduce the City’s long-term financial exposure for retiree benefits.
This reserve will be initially funded at $1,500,000 beginning with the adoption of the Fiscal Year
2018/19 budget. It is the goal of the City to maintain this reserve annually at the $1,500,000
level. Future funding and uses of this reserve will be reviewed annually and recommendations
for additional set aside amounts will be made each year by the City Manager or designee to the
City Council during the budget review and adoption process subject to overall funds availability.
.
The General Fund Reserve Policy, comprising of the four (4) Reserves is reviewed by the City
Council as part of the annual budget review and adoption process. Appropriations of any General
Fund internally restricted reserves require formal Council authorization.
Reserve Levels
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
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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 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.
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Replenishment of Budget Sustainability and Catastrophic Event ReservesUnreserved Fund
Balance
In keeping with the principles discussed in this policy, when the Budget Sustainability and
Catastrophic Event Reserves either fund is used, City Council will develop a one (1) to five (5)
year reserve replenishment plan to meet the minimum threshold of the Budget Sustainability and
Catastrophic Event Reserves, amounting to 15% of the General Fund’s ongoing, operating
expenditures, excluding one-time expenditures. prior to replenishing the other reserve funds.
Excess Fund Balance
At the end of each fiscal year, the Finance Department reports on the audited year-end budgetary
fiscal financial 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 minimum Budget Sustainability and
Catastrophic Event Reserve level required by thise reserve policy shall be available for allocation
for the following, subject to Council approval:
Offset projected future deficits
Anticipated intergovernmental fiscal impacts
One-time funding, non-recurring needs
Loan repayment acceleration
Upon funding of the above, the division of any remaining surplus balances shall be
recommended to the City Council by the City Manager or designee, between the Capital Assets
and Infrastructure Replacement, Insurance, and Retiree Benefits Reserves, based on most critical
needs at that time.shall be divided equally between the Budget Stabilization Reserve and Capital
Assets and Infrastructure Replacement for appropriation.
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