HomeMy WebLinkAbout2008-04-22; City Council; 19406; Adopting City Council Policy 74CITY OF CARLSBAD - AGENDA BILL 12
AB# 19,406
MTG. 4/15/08
DEPT. FIN
^XnUCity Council Policy 7$ ' '
General Fund Reserve Guidelines
DEPT. HEAD <^£L-
CITY ATTY. </&^
CITY MGR. tl>-
RECOMMENDED ACTION:
Adopt Resolution No. 2008-113
Guidelines.
ITEM EXPLANATION:
icy)?'adopting City Council Policy J6 General Fund Reserve
Establishing a minimum General Fund reserve is a mechanism that governments can
implement to help ensure adequate levels of fund balance are available to help mitigate current
and future risks. A minimum General Fund reserve is generally considered a prudent and
conservative fiscal policy to deal with unforeseen situations. Some examples of unforeseen
situations include:
• Unfunded Legislative or Judicial Mandates
• Economic Downturns or Increases in Inflation
• Reduced Revenues
• Federal/State/County Budget Cuts
• One-Time City Council Approved Expenditures
• Natural Disasters
The Government Finance Officers Association (GFOA), an international organization that
promotes the professional management of governments for the public interest, recommends
maintaining a minimum unreserved fund balance in the General Fund of no less than 5 to 15
percent of regular General Fund Operating Revenues or no less than two months or 17% of
General Fund Operating Expenditures. According to the GFOA, the methodology used to
create the reserve depends on the circumstances of the individual organizations. The GFOA
also recommends the establishment of a formal written policy on the level of unreserved fund
balance that should be maintained in the General Fund.
According to a recent survey, most cities choose General Fund Operating Expenditures as the
basis for a reserve. Typically there is less fluctuation and risk in forecasting future
expenditures. The General Fund Operating Expenditure's methodology is also typically
considered the more conservative basis for establishing a General Fund reserve.
DEPARTMENT CONTACT: L. Irvine @ 760-602-2430 lirvin@ci.carlsbad.ca.us
FOR CITY CLERKS USE ONLY. t
COUNCIL ACTION: APPROVED ^EJ.
DENIED D
CONTINUED O
WITHDRAWN D
AMENDED D
CONTINUED TO DATE SPECIFIC
CONTINUED TO DATE UNKNOWN
RETURNED TO STAFF
OTHER -SEE MINUTES
X 4-22-02n
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There are additional benefits to establishing a minimum General Fund reserve. Credit rating
agencies carefully monitor levels of fund balance and unreserved fund balance in a
government's General Fund to help evaluate a government's continued creditworthiness.
Finally, fund balance levels are a crucial consideration in long-term financial planning.
Based on the research of best practices, the City's revenue base, and the City's overall fiscal
conservatism, a plan has been developed for a City reserve policy. While the City has a long
history of fiscal stability and fiscal conservatism, this reserve policy will help to continue this
philosophy into the future. This reserve policy will help formalize the long-term approach for
continued fiscal stability.
The reserve will be calculated using the prior fiscal year's Adopted General Fund budgeted
expenditures and the reserve could be established from the existing undesignated and
unreserved General Fund balance. Reserves would be evaluated annually in conjunction with
the development of the City's 10-Year Financial Forecast and Annual Operating Budget
process.
The minimum and target undesignated and unreserved General Fund balances are intended to
be a prudent and conservative fiscal policy which should help contribute to the fiscal security of
the City. The reserve levels can be changed or used for specific purposes at the discretion of
the City Council. There is no maximum unreserved General Fund balance and any reasonable
additional reserve above the minimum reserve would provide a greater level of fiscal security.
FISCAL IMPACT:
lifIf City Council Policy No. 1ft is implemented, the City of Carlsbad will maintain a minimum
reserve for unforeseen emergencies or catastrophic impacts upon the City, and whenever
fiscally possible and financially prudent to maintain a greater target reserve. The minimum
reserve of the General Fund balance would be 30% of General Fund Operating Expenditures
and the target reserve would be a range of 40% to 50% of General Fund Operating
Expenditures. The minimum reserve would provide approximately three to four months of
operating expenditures for unforeseen emergencies and the target reserve of 40% to 50%
would provide approximately five to six months of operating expenditures for catastrophic
events.
The Policy would go in to affect once approved by the City Council. The current undesignated
and unreserved General Fund balance is estimated to be approximately $41 million at June 30,
2008. This would represent approximately 35% of the Fiscal Year 2007-08 Adopted General
Fund Budgeted expenditures.
ENVIRONMENTAL IMPACT:
There is no environmental impact to this policy.
EXHIBITS:ny
1. City Council Resolution No. 2008-113 Adopting City Council Policy No. $
General Fund Reserve Guidelines
2. Council Policy No. 7$ General Fund Reserve Guidelines
Exhibit 1
1 RESOLUTION NO. 2008-113
2 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
- CARLSBAD, CALIFORNIA, APPROVING CITY COUNCIL
POLICY NO. % GENERAL FUND RESERVE GUIDELINES.
4
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WHEREAS, it is the best practice and fiscally prudent to establish a
6
policy creating a General Fund Reserve. This policy establishes a General
8 Fund target reserve of 40% to 50% and a General Fund minimum reserve of
9 30% .
10 WHEREAS, the reserve will be calculated using the prior fiscal year's
11 Adopted General Fund budgeted expenditures and the reserve could be
1 7 established from the existing undesignated and unreserved General Fund
13
balance.
14
NOW, THEREFORE, BE IT RESOLVED by the City Council of the
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City of Carlsbad, California, as follows:
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1 . That the above recitations are true and correct.17
2. That City Council Policy No. 7% is adopted as shown in Exhibit 2 to
this resolution and is effective immediately.
20 3. That the City Clerk is hereby authorized to provide a copy of Policy
21 No. ^to all City departments and to all persons who request a copy.
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PASSED, APPROVED AND ADOPTED at a Regular Meeting of the City Council
of the City of Carlsbad on the 22nd day of April, 2008, by the following vote to wit:
AYES: Council Members Lewis, Kulchin, Hall, Packard and Nygaard.
NOES: None.
ABSENT: None.
ayor
ATTEST:
l)RRAIIS|E M. WOOD, ity Clerk
/(SEAlP ^
CITY OF CARLSBAD
COUNCIL POLICY STATEMENT
DATED: April 22, 2008
Exhibit 2 page
1 of 2
Policy No. 74
Date of Issue: 4/22/08
Effective Date 4/22/08
Cancellation Date
Supersedes No.
Subject: General Fund Reserve Guidelines
Copies to: City Council, City Manager, City Attorney, Department Heads and Division
Heads, Employee Bulletin Boards, Press, File
PURPOSE:
To provide guidelines to the City Council and staff for establishing, maintaining and the annual review
of a minimum and target General Fund reserve for the City of Carlsbad.
BACKGROUND:
Establishing a minimum General Fund reserve is a mechanism that governments can implement to
help insure adequate levels of fund balance are available to help mitigate current and future risks. A
minimum General Fund reserve is generally considered a prudent and conservative fiscal policy to
deal with unforeseen situations. Some examples of unforeseen situations include, but are not limited
to:
Unfunded Legislative or Judicial Mandates
Economic Downturns or Increases in Inflation
Reduced Revenues
Federal/State/County Budget Cuts
One-Time City Council Approved Expenditures
Natural Disasters
The Government Finance Officers Association (GFOA), an international organization that promotes
the professional management of governments for the public interest, recommends maintaining a
minimum unreserved fund balance in the General Fund of no less than 5 to 15 percent of regular
General Fund Operating Revenues or no less than two months or 17% of General Fund Operating
Expenditures. According to the GFOA, the methodology used to create the reserve depends on the
circumstances of the individual organizations. The GFOA also recommends the establishment of a
formal written policy on the level of unreserved fund balance that should be maintained in the General
Fund.
According to a recent survey, most cities choose General Fund Operating Expenditures as the basis
for a reserve. Typically there is less fluctuation and risk in forecasting future expenditures. The
General Fund Operating Expenditures methodology is also typically considered the more
conservative basis for establishing a General Fund reserve.
CITY OF CARLSBAD
COUNCIL POLICY STATEMENT
DATED: April 22, 2008
Exhibit 2
Page
2 of 2
Policy No. 74
Date of Issue: 4/22/08
Effective Date 4/22/08
Cancellation Date
Supersedes No.
Subject: General Fund Reserve Guidelines
Copies to: City Council, City Manager, City Attorney, Department Heads and Division
Heads, Employee Bulletin Boards, Press, File
There are additional benefits to establishing a minimum General Fund reserve. Credit rating agencies
carefully monitor levels of fund balance and unreserved fund balance in a government's General
Fund to evaluate a government's continued creditworthiness. Finally, fund balance levels are a
crucial consideration in long-term financial planning.
POLICY:
It is the policy of the City of Carlsbad to maintain a minimum reserve for unforeseen emergencies or
catastrophic impacts upon the City, and whenever fiscally possible and financially prudent to maintain
a greater target reserve. The minimum reserve of the General Fund balance would be 30% of
General Fund Operating Expenditures and the target reserve would be a range of 40% to 50% of
General Fund Operating Expenditures. The minimum reserve would provide approximately three to
four months of operating expenditures for unforeseen emergencies and the target reserve of 40% to
50% would provide approximately five to six months of operating expenditures for catastrophic
events. The reserve levels are higher than the GFOA recommended minimum reserve levels and
reflect the conservative fiscal policy of the City of Carlsbad.
The reserve will be calculated using the prior fiscal year's Adopted General Fund Budgeted
expenditures and the reserve could be established from the existing undesignated and unreserved
General Fund balance. Reserves would be evaluated annually in conjunction with the development
of the City's 10 Year Financial Forecast and Annual Operating Budget process. Staff
recommendations will be made to City Council annually on the available funds and the appropriate
reserve levels. If the General Fund balance should ever drop below the minimum reserve level, a
plan would be developed to return the General Fund back to the minimum reserve level.
The minimum and target undesignated and unreserved General Fund balances are intended to be a
prudent and conservative fiscal policy which should help contribute to the fiscal security of the City.
The reserve levels can be changed or used for specific purposes at the discretion of the City Council.
There is no maximum unreserved General Fund balance and any reasonable additional reserve
above the minimum reserve would provide a greater level of fiscal security.
CITY OF CARLSBAD
COUNCIL POLICY STATEMENT
DATED: March 7, 2008
Subject: General Fund Reserve Guidelines
Exhibit 2
Policy No.
Date of Issue:
Page
2 of
4/15/0£)rte
Effective Date 4/15/08
Cancellation Date
Supersedes No.
Copies to: City Council, City Manager, City Attorney, Department Heads and Division
Heads, Employee Bulletin Boards, Press, File
There are additional benefits to establishing a minimum General Fund reserve. Credit rating agencies
carefully monitor levels of fund balance and unreserved fund balance in a government's General
Fund to evaluate a government's continued creditworthiness. Finally, fund balance levels are a
crucial consideration in long-term financial planning.
POLICY:
It is the policy of the City of Carlsbad, whenever fiscally possible and financially prudent, to maintain a
General Fund target reserve and, a .minimum .reserve for unforeseen emergencies, or catastrophic
impacts upon the City., The target reserve would be a range of 40% to 50% of (general Fund
Operating Expenditures and jhe iriinjmum reseryerwpuld be
ExpendituresJ]hetargel: reserve.of 40% to 50%^would provide approximately five to^
operating expenditures for unforeseen requirements,, the minimum reserve wpuldjaroyide
approximately three to four months of operating expenditures for catastrophic events. The reserve
levels are higher than the GFOA recommended minimum reserve levels and reflect the conservative
fiscal policy of the City of Carlsbad.
The reserve will be calculated using the prior fiscal year's Adopted General Fund Budgeted
expenditures and the reserve could be established from the existing undesignated and unreserved
General Fund balance. Reserves would be evaluated annually in conjunction with the development
of the City's 10 Year Financial Forecast and Annual Operating Budget process. Staff
recommendations will be made to City Council annually on the available funds and the appropriate
reserve levels. If the General Fund balance should ever drop below the minimum reserve level, a
plan would be developed to return the General Fund back to the minimum reserve level.
The minimum and target undesignated and unreserved General Fund balances are intended to be a
prudent and conservative fiscal policy which should help contribute to the fiscal security of the City.
The reserve levels can be changed or used for specific purposes at the discretion of the City Council.
There is no maximum unreserved General Fund balance and any reasonable additional reserve
above the minimum reserve would provide a greater level of fiscal security.
1 Receive-Agenda Item #.
For the Information of the:
CITY COUNCIL
Asst. CM CA '-trc
ity Manager
- { Deleted: to maintain
Deleted:, and whenever fiscally
possible and financially prudent to
maintain a greater target reserve.
Deleted: T
Deleted: of the General Fund
balance
Deleted: and the target reserve
would be a range of 40% to 50% of
General Fund Operating
Expenditures. The minimum reserve
would provide approximately three to
four months of operating expenditures
for unforeseen emergencies and t
Deleted: for catastrophic events
City of Carlsbad
Office of the City Clerk
Records Management Department
April 24, 2008
TO: LISA IRVINE, FINANCE DIRECTOR
FROM: SHEILA COBIAN, DEPUTY CITY CLERK
SUBJECT: GENERAL FUND RESERVE GUIDELINES - COUNCIL POLICY
The Carlsbad City Council adopted the General Fund Reserve Guidelines Council Policy on
Tuesday, April 22, 2008. The Council Policy was assigned Policy Number 73; however, Policy
Number 73 had previously been assigned to the "Option to Purchase Resale Affordable
Housing" Council Policy that was adopted at the January 22, 2008 Carlsbad City Council
Meeting. Therefore, the correct Policy Number for the General Fund Reserve Guidelines is
Council Policy 74. Please make any necessary corrections to your records.
120O Carlsbad Village Drive -Carlsbad, CA 92OO8-1989 • (76O) 434-28O8
General Fund Reserve General Fund Reserve GuidelinesGuidelinesApril 15, 2008April 15, 2008
General Fund ReserveGeneral Fund ReservePrudent to establish a formal policy regarding Prudent to establish a formal policy regarding General Fund ReserveGeneral Fund ReserveGovernment Finance Officers Association Government Finance Officers Association recommends maintaining a minimum of 17% or recommends maintaining a minimum of 17% or two months operating expenditurestwo months operating expendituresCredit rating agencies analyze fund balances to Credit rating agencies analyze fund balances to help evaluate creditworthinesshelp evaluate creditworthiness
General Fund ReserveGeneral Fund ReserveReasons to have a reserve:Reasons to have a reserve:Unfunded Legislative or Judicial MandatesUnfunded Legislative or Judicial MandatesEconomic Downturns or Increases in InflationEconomic Downturns or Increases in InflationReduced RevenuesReduced RevenuesFederal/State/County Budget CutsFederal/State/County Budget CutsOneOne--Time City Council Approved ExpendituresTime City Council Approved ExpendituresNatural DisastersNatural Disasters
General Fund ReserveGeneral Fund ReserveRecommendationsRecommendationsEstablish a Establish a minimumminimumreserve of 30% of General reserve of 30% of General Fund Operating ExpendituresFund Operating ExpendituresEstablish a Establish a targettargetreserve of 40 reserve of 40 ––50% of 50% of General Fund Operating Expenditures although General Fund Operating Expenditures although a larger reserve would be even bettera larger reserve would be even better
General Fund ReserveGeneral Fund ReserveUsing FY 2007Using FY 2007--08 Operating Expenditures 08 Operating Expenditures ($116.5 million)($116.5 million)Minimum Reserve (30%)Minimum Reserve (30%)$35 million$35 millionTarget Reserve (40Target Reserve (40--50%)50%)$46$46--58 million58 millionCurrent Reserve (35%)Current Reserve (35%)$41 million$41 million
General Fund Reserve PolicyGeneral Fund Reserve PolicyRequesting the City Council Adopt City Council Requesting the City Council Adopt City Council Policy 73 General Fund Reserve Guidelines Policy 73 General Fund Reserve Guidelines establishing a minimum and target reserve levelsestablishing a minimum and target reserve levels
General Fund Reserve General Fund Reserve GuidelinesGuidelinesApril 22, 2008April 22, 2008
General Fund ReserveGeneral Fund ReservePrudent to establish a formal policy regarding Prudent to establish a formal policy regarding General Fund ReserveGeneral Fund ReserveGovernment Finance Officers Association Government Finance Officers Association recommends maintaining a minimum of 17% or recommends maintaining a minimum of 17% or two months operating expenditurestwo months operating expendituresCredit rating agencies analyze fund balances to Credit rating agencies analyze fund balances to help evaluate creditworthinesshelp evaluate creditworthiness
General Fund ReserveGeneral Fund ReserveReasons to have a reserve:Reasons to have a reserve:Unfunded Legislative or Judicial MandatesUnfunded Legislative or Judicial MandatesEconomic Downturns or Increases in InflationEconomic Downturns or Increases in InflationReduced RevenuesReduced RevenuesFederal/State/County Budget CutsFederal/State/County Budget CutsOneOne--Time City Council Approved ExpendituresTime City Council Approved ExpendituresNatural DisastersNatural Disasters
General Fund ReserveGeneral Fund ReserveRecommendationsRecommendationsEstablish a Establish a targettargetreserve of 40 reserve of 40 ––50% of 50% of General Fund Operating Expenditures although General Fund Operating Expenditures although a larger reserve would be even better a larger reserve would be even better Establish a Establish a minimumminimumreserve of 30% of General reserve of 30% of General Fund Operating ExpendituresFund Operating Expenditures
General Fund ReserveGeneral Fund ReserveUsing FY 2007Using FY 2007--08 Operating Expenditures 08 Operating Expenditures ($116.5 million)($116.5 million)Minimum Reserve (30%)Minimum Reserve (30%)$35 million$35 millionTarget Reserve (40Target Reserve (40--50%)50%)$46$46--58 million58 millionCurrent Reserve (35%)Current Reserve (35%)$41 million$41 million
General Fund Reserve PolicyGeneral Fund Reserve PolicyRequesting the City Council Adopt City Council Requesting the City Council Adopt City Council Policy 73 General Fund Reserve Guidelines Policy 73 General Fund Reserve Guidelines establishing target and minimum reserve levelsestablishing target and minimum reserve levels