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HomeMy WebLinkAbout2010-11-30; City Council; 20411; REVISE CITY COUNCIL POLICY 74CITY OF CARLSBAD - AGENDA BILL 8 AB# 20,411 MTG. 11/30/10 DEPT. FIN Revise City Council Policy 74 General Fund Reserve Policy DEPT. DIRECTOR C&*\ CITY ATTORNEY ^rjtg^ CITY MANAGER l/s— RECOMMENDED ACTION: Adopt Resolution No. Reserve. 2010-264 revising City Council Policy 74, General Fund ITEM EXPLANATION: In April 2008, the City Council adopted Policy Number 74, which established guidelines for General Fund reserve levels. The Policy establishes a minimum General Fund balance of 30 percent of operating expenditures and sets a target level of 40 to 50 percent, with no maximum level. The minimum reserve was established to provide solvency in the event of "unforeseen emergencies or catastrophic impacts," while the target level was established in the interests of prudent fiscal management. Staff examined reserve policies implemented by several California cities and counties and the guidance provided by the Government Finance Officers Assoc (GFOA) regarding the use of undesignated fund balances (reserves). The use of reserves or undesignated fund balance was generally restricted to shortfalls created by one-time, non-recurring events. Many cities establish reserve requirements for economic uncertainty and for unforeseen interruptions in revenues, which occurs when the state or county fails to remit revenues. In the current Carlsbad reserve policy, the use of these reserves is relatively unrestricted and can be used to fund operating expenditures for any unforeseen emergencies. In order to make the use of General Fund reserves more restrictive, the Council could amend Policy Number 74 to: • Establish, as part of the policy, a condition that the General Fund reserve is used for one- time uses only. • Set different criteria for use of certain reserve levels. For example, the minimum reserve of 30 percent could be restricted to emergency situations only, while reserves above 30 percent could be restricted for one-time uses to provide liquidity in times of economic crisis. DEPARTMENT CONTACT: Chuck McBride 760-602-2430 Chuck.McBride@carlsbadca.qov FOR CITY CLERKS USE ONLY. COUNCIL ACTION: APPROVED DENIED CONTINUED WITHDRAWN AMENDED * D On CONTINUED TO DATE SPECIFIC CONTINUED TO DATE UNKNOWN RETURNED TO STAFF OTHER -SEE MINUTES D D D D Page 2 FISCAL IMPACT: None. ENVIRONMENTAL IMPACT: Pursuant to Section 15061 of the CEQA Guidelines, the activity is covered by the General Rule that CEQA applies only to projects which have the potential for causing a significant effect on the environment. Where it can be seen with certainty that there is no possibility that the activity in question may have a significant effect on the environment, the activity is not subject to CEQA. EXHIBITS: 1. Resolution No. 2010-264 , Approving Revision to City Council Policy 74 2. Council Policy Statement 74, revised 3. Council Policy Statement 74, dated March 7, 2008, recommended changes Exhibit 1 1 RESOLUTION NO. 2010-264 2 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CARLSBAD, CALIFORNIA, APPROVING REVISIONS TO CITY 4 COUNCIL POLICY NO. 74 GENERAL FUND RESERVE GUIDELINES. 5 ' 6 7 WHEREAS, the City Council adopted Council Policy 74, concerning 0 General Fund reserve guidelines, on March 7, 2008; and 9 WHEREAS, the Council proposes revisions to Council Policy 74, in 10 order to incorporate changes that restrict the use of General Fund reserves. 11 NOW, THEREFORE, BE IT RESOLVED by the City Council of the 12 City of Carlsbad, California, as follows: 14 1. That the above recitations are true and correct. 15 2. That City Council Policy No. 74 be amended to read as set forth in 16 Exhibit 2 to the Agenda Bill entitled Revise City Council Policy 74 General 17 Fund Reserve Policy. 1 8 3. That the City Clerk is hereby authorized to provide a copy of Policy 19 No. 74 to all City departments and to all persons who request a copy. 20 21 // 22 // 23 // 24 // 25 // 26 // 27 // 28 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 PASSED, APPROVED AND ADOPTED at a Special Meeting of the City Council of the City of Carlsbad on the 30th day of November, 2010, by the following vote to wit: AYES: Council Members Lewis, Kulchin, Hall, Packard and Blackburn. NOES: None. ABSENT: None. ATTEST: LORRAINE M. WOOD, Cit/cerk / (SEAL) (/ Exhibit 2 Page 1 of 3 CITY OF CARLSBAD Policy No 74 Date of Issue: 11/30/10 COUNCIL POLICY STATEMENT DATED: March 7, 2008 Effective Date 11/30/10 Cancellation Date Supersedes No. 4/15/08 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: March 7, 2008 Exhibit 2 Page 2 of 3 Policy No. 74 Date of Issue: 11/30/10 Effective Date 11/30/10 Cancellation Date Supersedes No. 4/15/08 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: For purposes of this policy, the term "reserve" includes undesignated, unreserved fund balance. 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 may be used for cash flow needs necessitated by unforeseen emergencies, while reserves in excess of the minimum will be used only for one-time uses associated with unexpected events, such as economic downturns or temporary reductions in revenues. In general, General Fund reserves will be used for one-time uses only. The reserve level, which includes undesignated fund balance, will be calculated using the prior fiscal year's Adopted General Fund Budgeted expenditures. 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. Exhibit 2 CITY OF CARLSBAD COUNCIL POLICY STATEMENT DATED: March 7, 2008 Page 3 of 3 74Policy No. Date of Issue: 11/30/10 Effective Date: 11/30/10 Cancellation Date: Supersedes No. 4/15/08 Subject: General Fund Reserve Guidelines Copies to: City Council, City Manager, City Attorney, Department Heads and Division Heads, Employee Bulletin Boards, Press, File 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 Exhibit 3 Page 1 of 3 Policy No. 74 Date of Issue: 11/30/10 Effective Date 11/30/10 Cancellation Date Supersedes No. 4/15/08 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. Exhibit 3 CITY OF CARLSBAD COUNCIL POLICY STATEMENT DATED: March 7, 2008 Page 2 of 3 74Policy No. Date of Issue: 11/30/10 Effective Date 11/30/10 Cancellation Date Supersedes No. 4/15/08 Subject: General Fund Reserve Guidelines Copies to: City Council, City Manager, City Attorney, Department Heads and Division Heads, Employee Bulletin Boards, Press, File 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. 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: For purposes of this policy, the term "reserve" includes undesianated. unreserved fund balance. 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 may be used for cash flow needs necessitated by unforeseen emergencies, while reserves in excess of the minimum will be used only for one-time uses associated with unexpected events, such as economic downturns or temporary reductions in revenues. In general, General Fund reserves will be used for one-time uses only. Exhibit 3 CITY OF CARLSBAD COUNCIL POLICY STATEMENT DATED: March 7, 2008 Page 3 of 3 74Policy No. Date of Issue: 11/30_/±0 Effective Date 11/30/10 Cancellation Date Supersedes No. 4/15/08 Subject: General Fund Reserve Guidelines Copies to: City Council, City Manager, City Attorney, Department Heads and Division Heads, Employee Bulletin Boards, Press, File The reserve level, which includes undesianated fund balance, -will be calculated using the prior fiscal year's Adopted General Fund Budgeted expenditures^ and the rosorvo could bo established from tho 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.