HomeMy WebLinkAboutResolution No. 2021-C29RESOLUTION NO.2021-C29
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, the City updated the General Fund Reserve Policy on June 18, 2018
to include additional reserve categories; and
WHEREAS, the level of reserves and recommended uses are reviewed each year at
budget adoption; and
WHEREAS, the City desires to revise the amount of some of the reserve categories
in the General Fund Reserve Policy (Attachment A) with the adoption of the Fiscal Year
2021/22 Budget.
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 ce 1 iify asto the adoption of this resolution.
PASSED, APPROVED and ADOPTED this 2 1 " day of June, 2021.
C� e ,94Z4��
Robert males
Mayor
ATTEST:
STATE OF CALIFORNIA )
COUNTY OF LOS ANGELES )ss.
CITY OF AZUSA )
I HEREBY CERTIFY that the foregoing Resolution No. 2021-C29 was duly adopted by the
City Council of the City of Azusa at a regular meeting thereof, held on the 21" day of June 2021, by the
following vote of the Council:
AYES: COUNCILMEMBERS: GONZALES, MACIAS, ALVAREZ, AVILA, MENDEZ
NOES: COUNCILMEMBERS: NONE
ABSENT: COUNCILMEMBERS: NONE
02
Je r a ce Cornejo r.
ity Cler
APPROVED AS TO FORM:
Best Best Krieger, LLP
City Attorney
Rid. IT10orif 1
i
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
Revised 6-21-21
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 6-21-21
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 6-21-21
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 25% of the General Fund annual operating expenditures (minus one-time expenditures).
After allocating a minimum of 25% 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 funded at $2,000,000 with the adoption of the Fiscal Year 2021/22 budget.
It is the long-term goal of the City to build and replenish this reserve in an amount equal to the
minimum of $2,000,000 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 funded at $2,500,000 - with the adoption of the Fiscal Year 2021 /22 budget.
It is the goal of the City to maintain this reserve annually at the $2,500,000 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 6-21-21
This reserve will be funded at $2,000,000 with the adoption of the Fiscal Year 2021/22 budget. It
is the goal of the City to maintain this reserve annually at the $2,000,000 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 25% 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 Administrative Service Department Finance Division 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 6-21-21