The URL can be used to link to this page

Home My WebLink About2021-06-08; City Council; ; Establish City Council Policy to formalize funding mechanisms for the long-term capital needs of the cityMeeting Date: June 8, 2021 To: Mayor and City Council From: Scott Chadwick, City Manager Staff Contact: Ryan Green, Finance Director ryan.green@carlsbadca.gov, 760-602-2414 Laura Rocha, Deputy City Manager, Administrative Services laura.rocha@carlsbadca.gov, 760-602-2415 Subject: Establish City Council Policy to formalize funding mechanisms for the long- term capital needs of the city District: All Recommended Action 1.Establish a new City Council policy to formalize the options to provide funding for the long-term capital needs of the city1 2.Approve the transfer of funds from the General Fund’s Innovation Fund to the new Technology Investment Capital Fund in fiscal year 2021-22 Executive Summary Financial policies are central to a strategic, long-term approach to financial management. Institutionalizing financial management practices promotes fiscal stewardship, stability and continuity. They define a shared understanding of how an organization will develop its financial practices and manage its resources to provide the best value to the community. The proposed City Council financial management policy will assist the city in achieving its current and future goals in a fiscally responsible and sustainable manner. This policy establishes guidelines for formalizing a methodology to fund the city’s long-term capital needs and laying the foundation, in a financial sense, for carrying out the Strategic Digital Transformation Investment Program. Discussion Background A city’s funding strategy for its long-term capital needs is a critical component of a government’s approach to capital asset management. A well-designed capital funding policy supports proactive financial management, given the many demands on a government’s 1 City Council Policy No. 1 requires all City Council policies to be adopted, amended or rescinded by a resolution receiving four affirmative votes of the City Council. June 8, 2021 Item #13 Page 1 of 35 resources and provides a strategic tool to use in optimizing the city’s substantial investments, including new assets and asset repairs and replacements. The city has historically separated its capital investment portfolio into two distinct segments, the Capital Improvement Program, known as the CIP, and the Innovation Fund, now called the Strategic Digital Transformation Investment Program, and funding for each program has been independently managed. The process for funding the CIP is well established and transparent, and the General Fund funding sources, the General Capital Construction Fund and the Infrastructure Replacement Fund, are identified and segregated for ease of understanding. Conversely, the funding for digital innovation projects has been comingled within the General Fund’s operating budget for more than ten years. To enhance transparency and support the maturity of the oversight process, staff recommend the funds be transferred from the General Fund to a separately tracked fund, similar to the CIP. Additionally, the General Capital Construction Fund and the Infrastructure Replacement Fund, the CIP’s funding sources, have been funded each year through the budget process while the Innovation Fund, the Strategic Digital Transformation Investment Program’s funding source, has been funded with budget surplus. The plans for funding both CIP and innovation projects have not been formally established in city codes or policies. Such funding plans are needed to support the city’s long-term capital investment goals. Capital Improvement Program The Capital Improvement Program includes any construction, rehabilitation or replacements of major infrastructure, such as streets, libraries, parks, fire stations and administration facilities, water, sewer and drainage facilities and other physical city facilities. Projects falling under the CIP are governed under Administrative Order No. 50 (Exhibit 5). CIP funding sources vary considerably and include the gas tax, Community Facility District No. 1, various other non-General Fund sources and two General Fund sources: The General Capital Construction Fund and the Infrastructure Replacement Fund. The city has traditionally strived to pay for each project using the most restrictive funding available. City Finance staff have informally practiced prudent fiscal management by proposing to the City Council during the budget adoption process that transfers be made from the General Fund to the Infrastructure Replacement Fund and/or the General Capital Construction Fund on an annual basis. Past practice has varied, given the economic climate, but the average annual transfer has been 6% of total General Fund revenues. A table of historical and budgeted transfers dating to fiscal year 2004-05 are detailed below. June 8, 2021 Item #13 Page 2 of 35 1 Net transfer is $283,000 because $5,070,000 was transferred from the IRF to the GF as the Fire Station 4 project was cancelled. Historical transfers Fiscal year Infrastructure Replacement Fund transfer General Capital Construction Fund transfer Total CIP transfers General Fund revenues % of General Fund revenues 2004-05 $3,830,000 $ - $3,830,000 $102,261,720 4% 2005-06 4,250,000 - 4,250,000 106,874,290 4% 2006-07 7,200,000 - 7,200,000 123,169,918 6% 2007-08 7,900,000 - 7,900,000 119,935,977 7% 2008-09 7,800,000 - 7,800,000 115,775,128 7% 2009-10 6,538,000 - 6,538,000 117,934,154 6% 2010-11 7,175,000 - 7,175,000 117,500,901 6% 2011-12 7,382,000 - 7,382,000 116,450,179 6% 2012-13 7,547,000 - 7,547,000 124,208,853 6% 2013-14 7,800,000 - 7,800,000 128,323,991 6% 2014-15 8,302,000 - 8,302,000 143,545,025 6% 2015-16 8,952,000 - 8,952,000 147,948,784 6% 2016-17 9,460,000 10,500,000 19,960,000 153,669,106 13% 2017-18 9,970,000 - 9,970,000 160,941,561 6% 2018-19 10,681,000 - 10,681,000 175,708,746 6% 2019-20 5,111,500 5,111,500 10,223,000 171,382,610 6% 2020-21 4,500,000 4,500,000 9,000,000 159,315,392 6% 2021-22 5,353,0001 5,353,000 10,706,000 178,813,062 6% June 8, 2021 Item #13 Page 3 of 35 The balances of the General Capital Construction Fund and Infrastructure Replacement Fund are analyzed annually – future projects are weighed against expected transfers in – as part of the adoption of the annual Capital Improvement Program. The FY 2021-22 proposed budget included the following projected balances: Strategic Digital Transformation Investment Program The Strategic Digital Transformation Investment Program includes investments in digital hardware, software and technology that support or are used to support traffic management, law enforcement, public services, city facilities, finance, parks and recreation, public works and the needs of every department in the city. It became part of the annual budget process this fiscal year, to be managed in the same way as the Capital Improvement Program, providing more transparency of the city’s major investments in technology. Like the Capital Improvement Program, the city’s constantly updated plan for major capital projects, the Strategic Digital Transformation Investment Program would be updated and presented to the City Council each year for its consideration. A single list of proposed projects, stating their funding sources and timelines for implementation, would give the City Council and the public a complete picture of the city’s technology investment, something that, as noted above, the city has not had before. These projects, like the CIP, require a predictable funding source. The city has informally practiced prudent fiscal management by transferring funds from the General Fund to the Innovation Fund – now called the Strategic Digital Transformation Investment Program – and carried forward into the next fiscal year’s budget upon approval by the City Council. Innovation projects are currently administratively separated and tracked in what is called the Innovation Fund, but this fund is technically a subset of the General Fund Operating Budget. Best practice, similar to the Capital Investment Program, suggests that these funds be segregated from the General Fund Operating Budget. 2021-22 2022-23 2023-24 2024-25 2026-2027 2027-2036 Beginning balance $11,001,245 $14,107,245 $14,337,075 $17,007,231 $22,889,231 $29,007,231 Transfer from General Fund 5,353,000 5,534,000 5,794,000 5,882,000 6,118,000 65,612,000 Total project expenditures/ (unencumbrance) 2,247,000 5,304,170 3,123,844 - - 1,000,000 Ending balance $14,107,245 $14,337,075 $17,007,231 $22,889,231 $29,007,231 $93,619,231 2021-22 2022-23 2023-24 2024-25 2026-2027 2027-2036 Beginning balance $88,772,762 $78,027,852 $79,723,852 $83,686,852 $87,807,852 $92,824,852 Transfer from General Fund 5,353,000 5,534,000 5,794,000 5,882,000 6,118,000 65,612,000 Total project expenditures/ (unencumbrance) 16,097,910 3,838,000 1,831,000 1,761,000 1,101,000 11,700,000 Ending balance $78,027,852 $79,723,852 $83,686,852 $87,807,852 $92,824,852 $146,736,852 General Capital Construction Fund Infrastructure Replacement Fund June 8, 2021 Item #13 Page 4 of 35 The Innovation Fund balance was initially funded by appropriations made during the budget process beginning in 2008 from a General Fund surplus and funding has been replenished in a similar method since that time. Transfers to Innovation Fund since 2007 Fiscal year City Council- appropriated funding Annual expenditures/ encumbrances Remaining balance (carried forward) 2007-08 $3,597,211 - $3,597,211 2008-09 $5,075,665 $409,127 $8,263,749 2009-10 $3,019,639 $2,416,685 $8,866,703 2010-11 $3,614,819 $312,606 $12,168,916 2011-12 - $700,034 $11,468,882 2012-13 - $429,107 $11,039,775 2013-14 $2,440,321 $665,754 $12,814,342 2014-15 $1,629,757 $2,831,453 $11,612,646 2015-16 $2,254,934 $355,684 $13,511,896 2016-17 $2,000,000 $1,247,752 $14,264,144 2017-18 - $108,205 $14,155,939 2018-19 $1,900,000 $828,364 $15,227,575 2019-20 - $5,066,058 $10,161,517 2020-21 - $789,064 $9,372,454 Total $25,532,346 $16,159,892 Since its inception, the Innovation Fund has provided $16.2 million to 55 projects, the largest being the Digital Information Network, human capital management system project, EnerGov permitting system implementation and license plate readers. Information Technology Internal Service Fund The city’s ongoing information technology needs, such as enterprise software, computers, servers and information technology personnel costs, are provided to city departments through the Information Technology Internal Service Fund, from which each city department procures and pays for its IT service needs. The annual charge includes an amount that represents each department’s hardware depreciation and that amount is pooled into an IT Asset Replacement Fund, earmarked to be used at a later point to procure replacement hardware (but not software). The IT Replacement Fund balance as of June 30, 2020 was $3.7 million. The IT replacement funding model relies on hardware depreciation. Staff does not propose any change to this practice and recommend that this balance continue to be analyzed annually and continue to be used to replace city IT hardware as needs arise. Notably, the city’s IT needs and their related costs have increased over time and we expect the trend to continue. Additionally, IT procurements have and are trending away from hardware intensive to more cloud-based and software-centric forms. This has caused a shift in the long- term funding needs of IT, increasing the costs of initial software procurement and related ongoing maintenance, and decreasing costs of hardware. This shift has resulted in an increased June 8, 2021 Item #13 Page 5 of 35 IT operating budget (for ongoing software maintenance), increased Innovation Fund needs (for initial software procurements) and lower hardware replacement costs. Options Staff have developed the following financial management policy updates for the City Council’s consideration. The Carlsbad Municipal Code and City Council Policy Update ad hoc subcommittee has reviewed these options and its recommendations are noted. If the City Council decides to pursue any of these options, it could provide direction for staff on how to proceed. City Council Policy No. 91 – Long-term Capital Funding Policy Staff recommend adopting a new City Council policy that would establish a plan to replenish General Fund funded capital fund balances. Such a policy would ensure the long-term needs of the city are met, provide a funding source for long-term, large value capital purchases and demonstrate continued prudent fiscal management. While the city has historically used a percentage of revenue to fund the Infrastructure Replacement Fund and General Capital Construction Fund and annual surplus to fund the Innovation Fund balance, the best practice in government finance2 indicates that annual funding allocations and levels for a capital asset reserve are more commonly based on: • Maintaining a minimum ending balance equal to a dollar amount or a percentage of the five-year average of the entity’s annual capital budget. The actual dollar amount or percentage should be set based on the particular entity’s capital needs and financial capabilities. • Annually contribute an amount based on a percentage of the annual depreciation of the entity’s assets. Funding sources will vary and may include transfers from the General Fund, proceeds from property sales or one-time revenues, etc. Initial funding Based on the city’s past practices, initial funding was analyzed during the annual budget process. However, staff recommend transferring the remaining Innovation Fund balance in the General Fund to the Technology Investment Capital Fund in fiscal year 2021-22 and continuing the Information Technology Asset Replacement Fund process. Ongoing funding Staff recommend establishing the proposed Long-term General Fund Capital Funding Policy – City Council Policy No. 91 (Attachment A to Exhibits 1 and 2) in order to ensure the long-term capital needs of the city are met; provide a dedicated funding source for long-term large capital purchases; formalize a continued prudent fiscal management practice; and better align city fund balances with the long-term intentions of financing city projects that will advance the city’s coals and value. 2 See Government Finance Officers Association report, “Strategies for Establishing Capital Asset Renewal and Replacement Reserve Policies” at https://www.gfoa.org/materials/strategies-for-establishing-capital-asset- renewal-and June 8, 2021 Item #13 Page 6 of 35 Alternatives Staff and the Carlsbad Municipal Code and City Council Policy Update ad hoc subcommittee considered two alternatives: 1) Continuing the current practice. Pro • None identified. Cons • The current practice is not as transparent as the proposed methodology. By including the funding in the General Fund operating budget, the city does not provide the public with transparency about the current fund balance or what specific projects the funds are being spent on. • This is not an ideal long-term solution because the current General Fund Reserve policy does not explicitly allow for funding long-term capital needs, except those used for one-time opportunity cost purposes. • The current practice of carrying forward unspent or unencumbered balances in the General Fund on an annual basis does not align with the long-term commitment needed to ensure the city’s capital requirements are met. 2) Consolidating the Innovation Fund projects and associated funding into the Infrastructure Replacement Fund and the General Capital Construction Fund. Pro • This would make it easier to reallocate funding to the highest city priority, whether it is Capital Improvement Program or Strategic Digital Transformation Investment Program related. Ultimately, all funds allocated to these funds and the proposed Technology Investment Capital Fund originate from the General Fund, and the City Council has the authority to authorize staff to transfer between these different funds. Con • This would be more difficult to manage as the projects in the Strategic Digital Transformation Investment Program are different in scope and follow a separate process than the Capital Improvement Program. o There is a higher level of variability in the Strategic Digital Transformation Investment Program versus the CIP. Technology changes at a faster rate than city infrastructure. This is another reason why the timelines of the two programs differ: The Strategic Digital Transformation Investment Program forecasts costs for five years and the CIP projects costs for 15 years. o While the processes for identifying both traditional CIP projects and IT or innovation projects, there are two, separate steering committees which identify needs, consider solutions, prioritize projects and drive to completion. Combining the funding sources may decrease the speed from concept to completion as an additional arbitration layer may be required to prioritize between the two functional groups. o Some projects may partially meet the definition of both a CIP project and an SDTIP project. However, the current practice is to identify the preponderance of work to determine which process should lead the effort. The project lead then works with all necessary city groups to execute the project. June 8, 2021 Item #13 Page 7 of 35 One factor to consider The Information Technology Asset Replacement Fund is excluded above. Being an internal service fund, this fund has been funded and expended by and for the General Fund, Enterprise Funds and other funds over a long period of time, making the disaggregation and transfer process difficult, if possible. The balances of this fund are analyzed, and department charges are assessed annually. The Carlsbad Municipal Code and City Council Policy Update ad hoc subcommittee recommends: • Establishing the new proposed policy • Transferring the remaining General Fund innovation funds to the Technology Investment Capital Fund City Council Policy No. 74 – General Fund Reserve Policy A key attribute of a financially stable organization is maintaining an appropriate reserve level. Strong reserve levels position an organization to weather significant economic downturns more effectively; manage the consequences of outside agency actions that may result in revenue reductions; and address unexpected emergencies, such as natural disasters, catastrophic events caused by human activity, or excessive liabilities or legal judgments against the organization. The City Council’s General Fund Reserve Policy serves as a framework to deploy city resources to meet the city's financial commitments and address unexpected future events in a fiscally prudent manner. Staff’s recommendation to the subcommittee was to make the following amendment to the following language in the existing policy to clarify that the City Council may approve the use of excess reserves to fund the city’s long-term capital needs. Current text Proposed text At the discretion of the City Council, reserve levels in excess of the 40% target requirement, may be used for one-time opportunity cost purposes. At the discretion of the City Council, reserve levels in excess of the 40% target requirement, may be used for one-time opportunity cost purposes or to fund the city’s expected long-term capital needs. The proposed revisions to Policy No. 74 (Attachment B to Exhibit 1) could supersede Policy No. 74, dated June 18, 2019 (Exhibit 3). Pro • Amending the policy would provide the City Council with an additional option to use excess General Fund reserve without making a finding that the one-time cost provided savings or efficiency. Con • Not amending the policy would prevent a perception that excess General Fund reserve funds could be used for ongoing costs, rather than one-time costs. June 8, 2021 Item #13 Page 8 of 35 The Carlsbad Municipal Code and City Council Policy Update ad hoc subcommittee recommends: • Not amending the policy City Council Policy No. 87 – General Fund Surplus Policy Due to various factors including economic expansion, frugal operations, or changes to various projects and programs, the city may end a fiscal year with a surplus of revenues over expenditures, encumbrances and commitments. Surplus funds are those funds that result after closing the city's accounting records as defined by the results of the annual fiscal year audit. A General Fund surplus policy is a prudent governance practice to support other financial management policies allowing the city to meet its reserve policies, fund its long-term capital needs, and avoid or reduce its long-term liabilities, such as pension costs. To enable the City Council to consider approval of additionally funding the city’s long-term capital needs on an annual basis using remaining surplus funds from the prior fiscal year, staff recommended adding the following language to the existing policy: Any remaining surplus funds in excess of reserve deficiency, pension liability deficiencies, and after carry forward decisions have been made, may be brought forward for City Council approval to fund the city’s long-term capital funds, as defined in City Council Policy No. 91, Long-term General Fund Capital Funding Policy. The proposed revisions to Policy No. 87 (Attachment C to Exhibit 2) could supersede Policy No. 87, dated Aug. 27, 2019 (Exhibit 4). The pros and cons considered were: Pro • Amending the policy would provide the City Council with an additional option to use excess General Fund surplus. Con • Not amending the policy would prevent a perception that excess General Fund surplus funds could be used for ongoing costs, rather than one-time costs. The Carlsbad Municipal Code and City Council Policy Update ad hoc subcommittee recommends: • Not amending the policy Fiscal Analysis While there is no immediate fiscal impact to adopting and revising these financial management policies, financial management policies are central to a strategic, long-term approach to financial management. Institutionalizing good financial management practices promotes stability and continuity. They define a shared understanding of how an organization will develop its financial practices and manage its resources. June 8, 2021 Item #13 Page 9 of 35 Next Steps Should the City Council approve of the proposal recommended by the Carlsbad Municipal Code and City Council Policy Update ad hoc subcommittee and adopt the appropriate resolution, staff will: 1) Establish City Council Policy No. 91 – Long-term General Fund Capital Funding Policy 2) Transfer all General Fund innovation funds to the Technology Investment Capital Fund in fiscal year 2021-22 Should the City Council approve of the initial proposals presented by staff to the Carlsbad Municipal Code and City Council Policy Update ad hoc subcommittee and adopt the appropriate resolution, staff will: 1) Establish City Council Policy No. 91 – Long-term General Fund Capital Funding Policy 2) Transfer of all General Fund innovation funds to the Technology Investment Capital Fund in fiscal year 2021-22 3) Revise City Council Policy No. 74 – General Fund Reserve Policy 4) Revise City Council Policy No. 87 – General Fund Surplus Policy Should the City Council choose to take an alternative approach, city staff will return to the City Council with a resolution memorializing the City Council’s decision, as appropriate. Environmental Evaluation (CEQA) In keeping with California Public Resources Code Section 21065, this action does not constitute a “project” within the meaning of the California Environmental Quality Act in that it has no potential to cause either a direct physical change in the environment, or a reasonably foreseeable indirect physical change in the environment, and therefore does not require environmental review. Public Notification and Outreach Public notice of this item was posted in accordance with the Ralph M. Brown Act and it was available for public viewing and review at least 72 hours prior to the scheduled meeting date. Exhibits 1. City Council resolution – proposal recommended by the Carlsbad Municipal Code and City Council Policy Update ad hoc subcommittee 2. City Council resolution – initial staff proposal 3. City Council Policy No. 74 4. City Council Policy No. 87 5. Administrative Order No. 50 June 8, 2021 Item #13 Page 10 of 35 RESOLUTION NO, 2021-139 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CARLSBAD, CALIFORNIA, APPROVING THE ESTABLISHMENT OF CITY COUNCIL POLICY NO. 91 — LONG-TERM GENERAL FUND CAPITAL FUNDING POLICY AND THE TRANSFER OF ALL REMAINING INNOVATION FUNDS TO THE TECHNOLOGY INVESTMENT CAPITAL FUND WHEREAS, the City Council of the City of Carlsbad, California, has determined financial policies are central to a strategic, long-term approach to financial management; and WHEREAS, the City Council desires to establish a long-term capital funding policy (Attachment A) to help ensure resources are available to meet the city's long-term capital goals; and WHEREAS, the City Council further desires to follow best practices and enhance the transparency of funding for innovation projects by segregating and separately tracking the funding from the General Fund operating budget. NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Carlsbad, California, as follows: 1.That the above recitations are true and correct. 2.That the City Council approves new City Council Policy No. 91 — Long-term General Fund Capital Funding Policy (Attachment A). 3.That the Deputy City Manager, Administrative Services is authorized to transfer the Innovation Fund balance from the General Fund to the Technology Investment Capital Fund in fiscal year 2021-22. I/ I- II /I /I // /I /I June 8, 2021 Item #13 Page 11 of 35 PASSED, APPROVED AND ADOPTED at a Regular Meeting of the City Council of the City of Carlsbad on the 8th day of June, 2021, by the following vote, to wit: AYES: Hall, Blackburn, Acosta, Bhat-Patel, Schumacher. NAYS: None. ABSENT: None. MATT HALL, Mayor BARBARA ENGLESON, City Clerk (SEAL) ,,l‘11111)111111/1/4 . , E June 8, 2021 Item #13 Page 12 of 35 Attachment A Policy No. 91 Date Issued 03/23/2021 Resolution No. 2021-139 City Council POLICY STATEMENT Subject: Long Term General Fund Capital Funding Policy Purpose The purpose of this policy is to establish a long-term capital funding policy to: •Ensure the needs of the city are met; •Provide a funding source for long-term, large value capital purchases; and •Demonstrate continued prudent fiscal management. This policy also sets forth guidelines for establishing a plan to replenish capital fund balances to include both how such replenishment is to be funded and the period over which the replenishment is to occur. Background . Many city assets demand large capital expenditures, examples include roads, buildings, parks, and information technology infrastructure. The city funds the General Fund portion of these necessary investments in four ways: 1)The General Capital Construction Fund is primarily used to fund new General Fund infrastructure projects that do not fall into the Technology Investment Capital Fund projects, such as such as streets, libraries, parks, fire stations and administration facilities. 2)The Infrastructure Replacement Fund is primarily used to fund the General Fund's proportional share of repair and replacement of infrastructure projects that do not fall into the Technology Investment Capital Fund projects, such as such as streets, libraries, parks, fire stations and administration facilities, water, sewer and drainage facilities and other facilities located on or in the ground. 3)The Technology Investment Capital Fund is primarily used to fund the General Fund's proportional share of new capital investments that are principally comprised of technology, including hardware, software and other digital technology. 4)Information Technology Asset Replacement Fund, an Internal Service Fund, is primarily used to fund all contributing Funds' IT hardware repair and replacement costs. Statement of policy It is the policy of the City of Carlsbad to adopt an annual budget that includes a transfer from the General Fund to one or more of the city's long-term capital funds. The long-term capital funds include the General Capital Construction Fund, the Infrastructure Replacement Fund and the Technology Investment Capital Fund. June 8, 2021 Item #13 Page 13 of 35 The city commits to targeting a transfer to the city’s long-term capital funds of 6% of budgeted General Fund revenues. The transfers shall be proposed during the annual budget process or on an as needed basis for the City Council’s consideration. It is the policy of the City of Carlsbad to adopt an annual budget that includes a chargeback by the IT Internal Service Fund to fund the city’s future IT hardware repair and replacement related needs. June 8, 2021 Item #13 Page 14 of 35 RESOLUTION NO. . A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CARLSBAD, CALIFORNIA, APPROVING THE ESTABLISHMENT OF CITY COUNCIL POLICY NO. 91 – LONG-TERM GENERAL FUND CAPITAL FUNDING POLICY, REVISING CITY COUNCIL POLICY NO. 74 – GENERAL FUND RESERVE POLICY, REVISING CITY COUNCIL POLICY NO. 87 – GENERAL FUND SURPLUS POLICY AND APPROVING THE TRANSFER OF ALL REMAINING INNOVATION FUNDS TO THE TECHNOLOGY INVESTMENT CAPITAL FUND WHEREAS, the City Council of the City of Carlsbad, California has determined financial policies are central to a strategic, long-term approach to financial management; and WHEREAS, the City Council desires to establish a long-term capital funding policy (Attachment A)to help ensure resources are available to meet the city's long-term capital goals; and WHEREAS, the City Council adopted City Council Policy No. 74, concerning General Fund reserve guidelines, on March 3, 2008; and WHEREAS, the City Council previously revised City Council Policy No. 74 on Nov. 30, 2010 and June 18, 2019; and WHEREAS, the City Council desires to further revise City Council Policy No. 74 (Attachment B) to enable the City Council to approve the use of excess reserves to fund the city’s long-term capital needs in addition to funding one-time opportunity costs; and WHEREAS, the City Council adopted City Council Policy No. 87, concerning General Fund surplus guidelines, on Aug. 27, 2019; and WHEREAS, the City Council desires to revise City Council Policy No. 87 (Attachment C) to enable the City Council to consider approval of additionally funding the city’s long-term capital needs on an annual basis using remaining surplus funds from the prior fiscal year; and WHEREAS, the City Council desires to follow best practices and enhance the transparency of funding for innovation projects by segregating and separately tracking the funding from the General Fund operating budget. NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Carlsbad, California, as follows: 1.That the above recitations are true and correct. 2.That the City Council approves the new City Council Policy No. 91 – Long-term General Fund Capital Funding Policy (Attachment A). Exhibit 2 June 8, 2021 Item #13 Page 15 of 35 3. That the City Council approves the revised City Council Policy No. 74 – General Fund Reserve Policy (Attachment B). 4. That the City Council approves the revised City Council Policy No. 87 – General Fund Surplus Policy (Attachment C). 5. That the Deputy City Manager, Administrative Services is authorized to transfer the Innovation Fund balance from the General Fund to the Technology Investment Capital Fund in fiscal year 2021-22. PASSED, APPROVED AND ADOPTED at a Regular Meeting of the City Council of the City of Carlsbad on the __ day of ________, 2021, by the following vote, to wit: AYES: NAYS: ABSENT: _________________________ MATT HALL, Mayor _________________________ BARBARA ENGLESON, City Clerk (SEAL) June 8, 2021 Item #13 Page 16 of 35 Policy No. 91 Date Issued 03/23/2021 Resolution No. Subject: Long-Term General Fund Capital Funding Policy Purpose The purpose of this policy is to establish a long-term capital funding policy to: •Ensure the needs of the city are met; •Provide a funding source for long-term, large value capital purchases; and •Demonstrate continued prudent fiscal management. This policy also sets forth guidelines for establishing a plan to replenish capital fund balances to include both how such replenishment is to be funded and the period over which the replenishment is to occur. Background Many city assets demand large capital expenditures, examples include roads, buildings, parks, and information technology infrastructure. The city funds the General Fund portion of these necessary investments in four ways: 1)The General Capital Construction Fund is primarily used to fund new General Fund infrastructure projects that do not fall into the Technology Investment Capital Fund projects, such as such as streets, libraries, parks, fire stations and administration facilities. 2)The Infrastructure Replacement Fund is primarily used to fund the General Fund’s proportional share of repair and replacement of infrastructure projects that do not fall into the Technology Investment Capital Fund projects, such as such as streets, libraries, parks, fire stations and administration facilities, water, sewer and drainage facilities and other facilities located on or in the ground. 3)The Technology Investment Capital Fund is primarily used to fund the General Fund’s proportional share of new capital investments that are principally comprised of technology, including hardware, software and other digital technology. 4)Information Technology Asset Replacement Fund, an Internal Service Fund, is primarily used to fund all contributing Funds’ IT hardware repair and replacement costs. Statement of policy It is the policy of the City of Carlsbad to adopt an annual budget that includes a transfer from the General Fund to one or more of the city’s long-term capital funds. The long-term capital funds include the General Capital Construction Fund, the Infrastructure Replacement Fund and the Technology Investment Capital Fund. Attachment A June 8, 2021 Item #13 Page 17of 35 City Council Policy Statement No. 91 March 23, 2021 Page 2 The city commits to targeting a transfer to the city’s long-term capital funds of 6% of budgeted General Fund revenues. The transfers shall be proposed during the annual budget process or on an as needed basis for the City Council’s consideration. It is the policy of the City of Carlsbad to adopt an annual budget that includes a chargeback by the IT Internal Service Fund to fund the city’s future IT hardware repair and replacement related needs. June 8, 2021 Item #13 Page 18 of 35 Policy No. 74 Date Issued 03/23/2021 Resolution No. Subject: General Fund Reserve Policy Purpose 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 disaster or other catastrophic events; •Respond to the challenges of a changing economic environment, including prolonged downturns in the local, state, or national economy; and •Demonstrate continued prudent fiscal management and creditworthiness. This policy also sets forth guidelines for establishing a plan to replenish reserve deficiencies to include both how such replenishment is to be funded, and the period over which the replenishment is to occur. Background A key attribute of a financially stable organization is appropriate reserves. Strong reserves, often referred to as fund balances in governmental funds, position an organization to weather significant economic downturns more effectively; manage the consequences of outside agency actions that may result in revenue reductions; and address unexpected emergencies, such as natural disasters, catastrophic events caused by human activity, or excessive liabilities or legal judgments against the organization. A reserve policy serves as policy framework to deploy city resources to meet the city’s financial commitments and address unexpected future events in a fiscally prudent manner. The Government Finance Officers Association (GFOA), an international organization that promotes the professional management of governments for public interest, recommends maintaining at least two months of operating expenditures or 15% reserves. According to the GFOA, the methodology used to create the reserves depends on the circumstances of the individual organizations. Reserves are typically assessed based on a city’s unique circumstances or risk levels, and operating expenditures are generally the basis for such reserve. The General Fund is the main operating fund that pays for general services provided by the city, such as public safety, parks, and library services. The General Fund accounts for all general revenues of the city not specifically levied or collected for other city funds, and for expenditures related to the delivery of the city’s general services. The city endeavors to maintain adequate reserves for its General Fund as a matter of fiscal prudence and sound financial management. Establishing and maintaining General Fund reserves will guide the city in: •Planning for contingencies and unexpected events; Attachment B June 8, 2021 Item #13 Page 19 of 35 City Council Policy Statement No. 74 March 23, 2021 Page 2 •Maintaining good standing with credit rating agencies; •Ensuring cash availability when revenue is unavailable; and •Deciding when to use reserves and how to replenish reserves if they have been spent. As a general budget principle concerning use of reserves, the City Council decides whether or not to appropriate funds from reserves. Reserve funds will not be spent for any function other than the specific purpose of the reserve account from which they are drawn without specific direction in the annual budget; or by a separate City Council action. Per current Governmental Accounting Standards No. 54 (GASB 54), issued by the Governmental Accounting Standards Board, fund balances are divided into five classifications in the financial statements: Classification Nature of Restriction Non-Spendable Cannot be readily converted to cash or cannot be legally spent Restricted Externally imposed (by granting agencies, governmental entities, etc.) restrictions on spending Committed City Council formally-imposed (by resolution or other action) restrictions on spending Assigned Funds reserved by City Council direction for designated purposes Unassigned Residual balance not classified in any of the above categories These five classifications are applicable only to governmental funds, which includes the General Fund, and are intended to identify the extent to which fund balance (or a reserve) is constrained by special restrictions, if any. The city commits to preparing financial reports which accurately categorize fund balance in compliance with GASB 54. Fund balance levels are a crucial consideration in long-term financial planning. Statement of policy For purposes of this policy, the term “reserve” refers to any unassigned fund balance in compliance with GASB 54. It is the policy of the City of Carlsbad to maintain reserves for unforeseen emergencies or catastrophic impacts, and for significant changes to the economic environment. The city commits to maintaining General Fund reserves at a target of 40% of General Fund annual operating expenditures. The total reserve level will be calculated using the prior fiscal years adopted General Fund budgeted expenditures. June 8, 2021 Item #13 Page 20 of 35 City Council Policy Statement No. 74 March 23, 2021 Page 3 Reserves will be evaluated annually in conjunction with the development of the city’s annual operating budget process. Staff will report to City Council annually on the status of the reserve levels relative to this policy. At the discretion of the City Council, reserve levels in excess of the 40% target requirement, may be used for one-time opportunity cost purposes or to fund the city’s expected long-term capital needs. For example, one-time expenditures resulting in future efficiencies, infrastructure, special projects, or key economic development opportunities that provide savings or efficiencies where no funding source otherwise exists. These types of one-time opportunity costs may only be authorized by formal City Council action where findings have been made as to what constitutes the savings or how efficiencies will be achieved. In the event the reserve level is reduced below the amount established by this policy, the City Manager or Deputy City Manager of Administrative Services shall promptly prepare a plan as conditions warrant to replenish the required reserve level. The plan for replenishing any reserve deficiencies will include how such replenishment is to be funded and the period over which the replenishment is to occur. June 8, 2021 Item #13 Page 21 of 35 Policy No. 87 Date Issued 03/23/2021 Resolution No. Subject: General Fund Surplus Policy Purpose To establish a City Council policy for the appropriation of surplus funds resulting from General Fund actual revenues exceeding total actual expenditures, plus any unspent and unencumbered expenditure budget for a given fiscal year. Background Due to various factors including economic expansion, prudent operations, or changes to various projects and programs, the City of Carlsbad (city) may end a fiscal year with a surplus of revenues over expenditures, encumbrances and commitments. Surplus funds are those funds that result after closing the city’s accounting records as defined by the results of the annual fiscal year audit. It is the intent of the city to use all surplus funds generated to meet reserve policies, and the avoidance or reduction of long-term liabilities. The city will not use year-end surplus funds to fund ongoing operations unless otherwise approved by City Council. From time to time, the city manager may recommend to the City Council the use of surplus funds consistent with the uses identified in this policy. Statement of policy For the purposes of this policy, the term “surplus” refers to any actual revenues less actual expenditures, in a given fiscal year, plus any unspent and unencumbered expenditure budget. To achieve the purpose of this policy, the city will take the following actions: 1.The city will use surplus funds to replenish any General Fund reserve deficiencies, up to the minimum level as set forth in the City Council General Fund Reserve Policy No. 74 and then any pension liability deficiencies, as defined in City Council Policy No. 86, Pension Funding Policy. If the reserve and pension funding policies have been met as stated above, the City Manager is authorized to approve the carry forward of any unspent and unencumbered budget for a particular item equal to or less than $100,000 into the following fiscal year. These items will be one-time expenditures and not for on-going services, programs or personnel. Attachment C June 8, 2021 Item #13 Page 22 of 35 City Council Policy Statement No. 87 March 23, 2021 Page 2 2.Any remaining surplus funds in excess of reserve and pension liability deficiencies, and items equal to or greater than $100,000, as stated above, may be brought forward for City Council approval. 3.Any remaining surplus funds in excess of reserve deficiency, pension liability deficiencies, and after carry forward decisions have been made, may be brought forward for City Council approval to fund the city’s long-term capital funds, as defined in City Council Policy No. 90, Long-term General Fund Capital Funding Policy. 4.One-time funds, such as grant proceeds, will be used for one-time expenditures; therefore, the City Council may not use one-time revenues and surplus funds in a way that creates new on-going expenditure requirements, unless the City Council can demonstrate that adequate resources exist to support the on-going expenditure requirements. 5.After the close of the fiscal year, in preparation of the annual financial audit, city staff will demonstrate accountability and transparency by communicating compliance with the General Fund Reserve and Pension Funding Policy requirements in order for City Council to approve the staff recommended use of surplus funds. June 8, 2021 Item #13 Page 23 of 35 Page 1 of 3 Council Policy Statement Category: Specific Subject: General Fund Reserve Policy PURPOSE: 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 disaster or other catastrophic events; •Respond to the challenges of a changing economic environment, including prolonged downturns in the local, state, or national economy; and •Demonstrate continued prudent fiscal management and creditworthiness. This policy also sets forth guidelines for establishing a plan to replenish reserve deficiencies to include both how such replenishment is to be funded, and the period over which the replenishment is to occur. BACKGROUND: A key attribute of a financially stable organization is appropriate reserves. Strong reserves, often referred to as fund balances in governmental funds, position an organization to weather significant economic downturns more effectively; manage the consequences of outside agency actions that may result in revenue reductions; and address unexpected emergencies, such as natural disasters, catastrophic events caused by human activity, or excessive liabilities or legal judgments against the organization. A reserve policy serves as policy framework to deploy city resources to meet the city’s financial commitments and address unexpected future events in a fiscally prudent manner. The Government Finance Officers Association (GFOA), an international organization that promotes the professional management of governments for public interest, recommends maintaining at least two months of operating expenditures or 15% reserves. According to the GFOA, the methodology used to create the reserves depends on the circumstances of the individual organizations. Reserves are typically assessed based on a city’s unique circumstances or risk levels, and operating expenditures are generally the basis for such reserve. The General Fund is the main operating fund that pays for general services provided by the city, such as public safety, parks, and library services. The General Fund accounts for all general revenues of the city not specifically levied or collected for other city funds, and for expenditures related to the delivery of the city’s general services. Policy No. 74 Date Issued: 6/18/2019 Effective Date: 6/18/2019 Resolution No. 2019-099 Cancellation Date: N/A Supersedes No. 74 11-30-2010 June 8, 2021 Item #13 Page 24 of 35 Exhibit 3 Policy No. 74 Page 2 of 3 The city endeavors to maintain adequate reserves for its General Fund as a matter of fiscal prudence and sound financial management. Establishing and maintaining General Fund reserves will guide the city in: •Planning for contingencies and unexpected events; •Maintaining good standing with credit rating agencies; •Ensuring cash availability when revenue is unavailable; and •Deciding when to use reserves and how to replenish reserves if they have been spent. As a general budget principle concerning use of reserves, the City Council decides whether or not to appropriate funds from reserves. Reserve funds will not be spent for any function other than the specific purpose of the reserve account from which they are drawn without specific direction in the annual budget; or by a separate City Council action. Per current Governmental Accounting Standards No. 54 (GASB 54), issued by the Governmental Accounting Standards Board, fund balances are divided into five classifications in the financial statements: Classification Nature of Restriction Non-Spendable Cannot be readily converted to cash or cannot be legally spent Restricted Externally imposed (by granting agencies, governmental entities, etc.) restrictions on spending Committed City Council formally-imposed (by resolution or other action) restrictions on spending Assigned Funds reserved by City Council direction for designated purposes Unassigned Residual balance not classified in any of the above categories These five classifications are applicable only to governmental funds, which includes the General Fund, and are intended to identify the extent to which fund balance (or a reserve) is constrained by special restrictions, if any. The city commits to preparing financial reports which accurately categorize fund balance in compliance with GASB 54. Fund balance levels are a crucial consideration in long-term financial planning. POLICY: For purposes of this policy, the term “reserve” refers to any unassigned fund balance in compliance with GASB 54. It is the policy of the City of Carlsbad to maintain reserves for unforeseen emergencies or catastrophic impacts, and for significant changes to the economic environment. The city commits to maintaining General Fund reserves at a target of 40% of General Fund annual operating expenditures. The total reserve level will be calculated using the prior fiscal years adopted General Fund budgeted expenditures. Reserves will be evaluated annually in conjunction with the development of the city’s annual operating budget process. Staff will report to City Council annually on the status of the reserve levels relative to this policy. June 8, 2021 Item #13 Page 25 of 35 Policy No. 74 Page 3 of 3 At the discretion of the City Council, reserve levels in excess of the 40% target requirement, may be used for one-time opportunity cost purposes. For example, one-time expenditures resulting in future efficiencies, infrastructure, special projects, or key economic development opportunities that provide savings or efficiencies where no funding source otherwise exists. These types of one-time opportunity costs may only be authorized by formal City Council action where findings have been made as to what constitutes the savings or how efficiencies will be achieved. In the event the reserve level is reduced below the amount established by this policy, the City Manager or Deputy City Manager of Administrative Services shall promptly prepare a plan as conditions warrant to replenish the required reserve level. The plan for replenishing any reserve deficiencies will include how such replenishment is to be funded and the period over which the replenishment is to occur. June 8, 2021 Item #13 Page 26 of 35 Council Policy Statement Category: FINANCIAL MANAGEMENT POLICIES Specific Subject: General Fund Surplus Policy PURPOSE: To establish a City Council policy for the appropriation of surplus funds resulting from General Fund actual revenues exceeding total actual expenditures, plus any unspent and unencumbered expenditure budget for a given fiscal year. BACKGROUND: Due to various factors including economic expansion, prudent operations, or changes to various projects and programs, the City of Carlsbad (city) may end a fiscal year with a surplus of revenues over expenditures, encumbrances and commitments. Surplus funds are those funds that result after closing the city’s accounting records as defined by the results of the annual fiscal year audit. It is the intent of the city to use all surplus funds generated to meet reserve policies, and the avoidance or reduction of long term liabilities. The city will not use year-end surplus funds to fund ongoing operations unless otherwise approved by City Council. From time to time, the city manager may recommend to the City Council the use of surplus funds consistent with the uses identified in this policy. POLICY: For the purposes of this policy, the term “surplus” refers to any actual revenues less actual expenditures, in a given fiscal year, plus any unspent and unencumbered expenditure budget. To achieve the purpose of this policy, the city will take the following actions: 1.The city will use surplus funds to replenish any General Fund reserve deficiencies, up to the minimum level as set forth in the City Council General Fund Reserve Policy No. 74 and then any pension liability deficiencies, as defined in City Council Policy No. 86, Pension Funding Policy. 2.If the reserve and pension funding policies have been met as stated above, the city manager is authorized to approve the carry forward of any unspent and unencumbered budget for a particular item equal to or less than $100,000 into the following fiscal year. These items will be one-time expenditures and not for on-going services, programs or personnel. Policy No. 87 Date Issued: 08-27-2019 Effective Date: 08-27-2019 Resolution No. 2019-153 Cancellation Date: N/A Supersedes No. N/A August 27, 2019 Item #11 Page 4 of 8 June 8, 2021 Item #13 Page 27 of 35 Exhibit 4 3.Any remaining surplus funds in excess of reserve and pension liability deficiencies, and items equal to or greater than $100,000, as stated above, will be brought forward for City Council approval. 4.One-time funds, such as grant proceeds, will be used for one-time expenditures; therefore, the City Council may not use one-time revenues and surplus funds in a way that creates new on-going expenditure requirements, unless the City Council can demonstrate that adequate resources exist to support the on-going expenditure requirements. 5.After the close of the fiscal year, in preparation of the annual financial audit, city staff will demonstrate accountability and transparency by communicating compliance with the General Fund Reserve and Pension Funding Policy requirements in order for City Council to approve the staff recommended use of surplus funds. August 27, 2019 Item #11 Page 5 of 8 June 8, 2021 Item #13 Page 28 of 35 {city of Carlsbad Administrative Order No. 50 (Revised 11/10/2020) This order supersedes Administrative Order No. 50 dated 03/01/2019 Date: Nov. 10,2020 To: From: Subject: PURPOSE: All City Departments Scott Chadwick, City Manager Capital Improvement Program -Project Initiation, Prioritization, Budgeting and Adoption Procedure To establish processes and procedures through which capital projects are initiated, prioritized, budgeted and adopted in the City of Carlsbad (city) Capital Improvement Program (CIP). POLICY: 1. Asset management is lifecycle management of an infrastructure asset to provide the required level of service in the most cost-effective manner. Activities include project concept development or planning, design and construction, commissioning, operations and maintenance (sustainment), repair, replacement, upgrade, restoration, modernization or refurbishment and decommissioning or disposal. 2. All proposed capital improvement projects shall be consistent with: a. Public health and safety b. City mission, vision and organizational values c. Community values and City Council goals d. City's governing and policy documents, such as the Growth Management Plan, General Plan, Climate Action Plan, Habitat Management Plan and others e. Cash flow projections and funds available in various funding sources f. Environmental review processes, per the California Environmental Quality Act 3. Development of the CIP is a team effort involving all operational departments, the City Manager's Office and the City Council. ROLES AND RESPONSIBILITIES: 1. The Public Works and Administrative Services Branches are responsible for implementation of this Administrative Order. 2. Asset-Managing Departments/Divisions (AMDs) are responsible for lifecycle management of their infrastructure assets. Current AMDs are as follows: • Public Works (PW) Branch, Utilities Department/ Carlsbad Municipal Water District (CMWD) -Water, recycled water and wastewater assets City Hall 1200 Carlsbad Village Drive I Carlsbad, CA 92008 I 760-434-2820 I 760-720-9461 fax I www.carlsbadca.gov Exhibit 5 June 8, 2021 Item #13 Page 29 of 35 • PW Branch, Transportation Department -Streets, streetlights, traffic signals, traffic control devices and storm water assets • PW Branch, Facilities & Fleet Department -City buildings and facilities assets • Community Services Branch, Parks & Recreation Department -Parks, recreation facilities, trails and open space assets 3. It is the AM D's responsibility to identify project needs and define operational requirements to propose a project for inclusion in the CIP. 4. Sponsoring departments for city-owned facilities include Fire, Police, Information Technology (IT) and Library & Cultural Arts (L&CA) Departments. 5. AMDs will work with sponsoring departments to develop CIP projects' scopes of work and cost estimates for facilities as needed. 6. AMDs will coordinate with sponsoring departments and L&CA on public art in CIP projects. 7. AMDs will work with applicable staff to ensure compliance with the current master plans, General Plan, Climate Action Plan and other governing documents. 8. AMDs will identify when a project may be subject to voter approval per Carlsbad Municipal Code Chapter 1.24 (Proposition H). 9. Utilities undergrounding projects will be completed per the prioritized list that has been approved by City Council, subject to funding availability or when associated with street widening projects per City Council Policy No. 41. 10. The Transportation Department will present applicable transportation and/or mobility projects to the Traffic and Mobility Commission per City Council direction. 11. The CIP Steering Committee will review proposed CIP projects from a citywide perspective and advise the City Manager and Assistant City Manager on the CIP priorities. Members of the CIP Steering Committee include: • Deputy City Manager, Public Works -Chair • Deputy City Manager, Administrative Services • Deputy City Manager, Community Services • Transportation Director • Utilities Director • Facilities & Fleet Department Manager • Parks & Recreation Director • Library & Cultural Arts Director • Police Chief • Fire Chief • Chief Innovation Officer • Community Development {CD) Assistant Director • Others as designated by the Chair 12. The CIP Development Team will propose and develop CIP projects for the city's infrastructure assets. Members of the CIP Development Team include: • Transportation Director -Chair • Utilities Director • Facilities & Fleet Department Manager • Utilities Department Engineering Manager • Parks Services Manager • Parks Planning Manager • City Traffic Engineer 2 June 8, 2021 Item #13 Page 30 of 35 • Transportation Engineering Manager • Facilities Municipal Projects Manager (representing sponsoring departments' requirements) • Finance Director-advisory • Information Technology (IT) Director-advisory • Fire Marshal -advisory • Cultural Arts Manager -advisory • Community Development Associate Planner -advisory • Environmental Management Department Manager-advisory • Construction Management & Inspection (CM&I) Department Manager -advisory • Facilities Superintendent -advisory • Public Works Senior Management Analyst -advisory • Finance Budget Manager -advisory • Finance Senior Accountant -advisory • Others as designated by the Chair 13. The CIP Budget Support Team will provide support in developing the CIP Budget, including providing revenue estimates for all CIP funding sources and preparing the CIP Budget schedules, technical appendices and summaries. Members of the CIP Budget Team include: • Finance Budget Manager • Finance Assistant Director • Finance Senior Accountant • Public Works Senior Management Analyst • Others as designated by the Deputy City Manager, Administrative Services PROJECT PRIORITIZATION AND SCORING: AMDs and sponsoring departments will determine project scores using the table below. Project scores will be updated when necessary. Additional guidance on project prioritization and scoring is available in the CIP Budget Manual. Factors Points Risk to Health, Safety and Environment and Regulatory or Mandated Requirements 35 Community Values 25 Asset Condition, Annual Recurring Costs and Asset Longevity 20 Multiple Category Benefit and Bundling Opportunities 10 Project Readiness 5 Funding Availability 5 Total 100 Prioritization level is designated based on project score. • Critical priority projects represent a score of 90 or above. • High priority projects represent a score between 70 and 89. • Medium priority projects represent a score between 50 and 69. • Low priority projects represent a score of 49 or below. 3 June 8, 2021 Item #13 Page 31 of 35 PROJECT FUNDING: 1. After project prioritization, timing of projects will be compared to the projected cash flow and forecast of funds available. Where there is insufficient available funding (regardless of funding source), lower priority projects will be deferred to later years. High-priority projects will be funded as soon as possible based on funding availability. 2. When possible, design, environmental review and land acquisition should be scheduled and funded in advance of the construction need date to ensure the project will be ready for construction when needed, thereby avoiding project delays, and to use funds more efficiently by not encumbering funds for construction while waiting on the design and environmental review process. PROJECT SUBMITTAL APP: 1. New projects and project changes will be entered using the CIP Project Submittal App online. The CIP Project Submittal App will include information such as AMD, project changes, classification, compliance requirements, project description, district, funding information by fiscal year, location, project manager, project name, phase, type, rationale, regulatory requirements, scoring, sponsoring department, subcategory, and other information as needed. Projects will also be reviewed for Proposition H applicability. 2. Project Charter reports, and other reports as requested, will be generated using data from the CIP Project Submittal App. 3. A public dashboard and map of CIP projects will be made available on the city website based on approved budget data. 4. Project managers will update all projects' status as they transition from one project phase (e.g., planning, design, construction, etc.) to the next. TIMELINE: The CIP Steering Committee will meet quarterly. A call for new CIP projects to the AMDs and sponsoring departments will occur annually in December, which will be initially discussed during the January CIP Steering Committee Meeting and further discussed during the April CIP Steering Committee Meeting. Ongoing CIP projects will be reviewed quarterly for any additional funding requirements. Community workshops will be scheduled as part of the budget development process. Other public input and outreach will occur as part of the project development process (e.g., during design and prior to construction). December -January AMDs will prepare project request information via the CIP Project Submittal App for new projects, including project scores. Sponsoring departments will work closely with the AMDs to prepare project requests, including project scores, for new projects. The CIP Budget Support Team will refresh ongoing CIP project information in the CIP Project Submittal App for additional funding and project scores based on AMD requests. Public outreach may be conducted regarding budget priorities. 4 June 8, 2021 Item #13 Page 32 of 35 February -March The CIP Development Team will meet to review proposed projects, including funding requests and project scores/priorities. Feedback from public outreach will be considered and incorporated as appropriate. April The CIP Steering Committee will review projects proposed by the CIP Development Team. Deputy City Managers for Public Works and Administrative Services, along with the CIP Budget Support Team, will brief the City Manager and Assistant City Manager on the proposed CIP Budget. Consistency findings per the General Plan and Climate Action Plan will be completed for new projects. May Deputy City Managers for Public Works and Administrative Services, along with the CIP Budget Support Team, will conduct City Council Member briefings and present the preliminary budget to City Council. June Deputy City Managers for Public Works and Administrative Services will request City Council action for final adoption of the proposed CIP Budget. The CIP Budget Support Team will update budget allocations in the city's financial accounting system upon City Council adoption of the proposed budget. July Adopted budget information will be updated in the public dashboard and map available on the city website. The CIP Steering Committee will review ongoing CIP projects' funding status and project scores/priorities as well as discuss any proposed CIP projects that the AMDs and/or sponsoring departments may be contemplating. August The CIP Budget Support Team will make CIP Project Charter reports available to the public. October The CIP Steering Committee will review ongoing CIP projects' funding status and project scores/priorities as well as discuss any proposed CIP projects that the AMDs and/or sponsoring departments may be contemplating. December The CIP Development Team chair will send out a call for new CIP projects for the upcoming fiscal year. CONTINUOUS IMPROVEMENT: Public Works and Administrative Services Branches yvill continuously look for opportunities to improve and streamline the CIP process and will review this Administrative Order periodically, as 5 June 8, 2021 Item #13 Page 33 of 35 needed, to ensure it is updated. The Public Works and Administrative Services Branches will also review business systems to identify and utilize the latest technology available for project scheduling and budgeting, as applicable. Attachment: 1. Sample Project Charter Report inistrative Order is effective immediately. City Manager 6 June 8, 2021 Item #13 Page 34 of 35 0 ~ City of Carlsbad -Project Charter Report Project Name: Avenida Encinas Widening -South of Palomar Airport Road Project ID: 6004 Classification: Capital Project Project Type: Transportation Change: No Change Asset Mgmt Dept: Transportation Project Manager: Brandon Miles Phase: Design Score: High New Project: NO Modified By: SDECB Modified Date: 5/25/2020 Council District: District 3 Location: Along the west side of Avenida Encinas south of Palomar Airport Road adjacent to the San Diego Northern Railway property Description: Widen the west side of Avenida Encinas to full secondary arterial standards from Palomar Airport Road to approximately 800 feet south. The work includes placement of fill material and construction of new curbs, gutters, aggregate base, asphalt paving and striping Rationale: Required to comply with Growth Management Standards. Voter Approval Required: No Voter Approval Notes: General Fund is not the funding source; therefore the project is not subject to voter approval requirements. Regulatory: CEQA Review, City Issues Permit, Mitigated Negative Declaration, Coastal Commission Review Year1 Year2 Prior Available (20-21) 21-22 JobKey Funding Source Appropriation Balance Appropriation Planned Compliance With: Growth Management Plan Year3 (22-23) Planned Year4 (23-24) Planned Years (24-25) Planned Year 6-10 (25-30) Planned Year 11-15 (30-35) Planned Total Funding Source 60041 TIF -5,176,097 0 $-5,177,000 $5,177,000 -5,176,097 0 0 0 0 Total: $-5, 176,097 $0 $-5, 177,000 $5,177,000 $0 $0 $0 $0 $0 $-5, 176,097 June 8, 2021Item #13 Page 35 of 35 City Council Policy Update for the Long- term Capital Asset Needs of the City Laura Rocha, Deputy City Manager, Administrative Services Ryan Green, Finance Director June 8, 2021 Purpose of proposal •Financial policies are central to a strategic, long-term approach to financial management –Formalize additional options to provide funding for the long-term capital needs of the city –Provide a funding source for long-term, large value capital purchases –Assist the city in achieving its current and future goals in a fiscally responsible and sustainable manner Proposal City Council Policy No. 91 –Long-term Capital Funding Policy •Adopt an annual budget that includes a transfer from the General Fund to one or more of the city’s long-term capital funds –Commits to targeting a transfer to the city’s long-term capital funds of 6% of budgeted General Fund revenues •Adopt an annual budget that includes a chargeback by the IT Internal Service Fund 4 Long-term Capital Fund transfers as a Percent of General Fund revenues 0% 2% 4% 6% 8% 10% 12% 14% Proposal City Council Policy No. 91 –Long-term Capital Funding Policy •Adopt an annual budget that includes a transfer from the General Fund to one or more of the city’s long-term capital funds –Commits to targeting a transfer to the city’s long-term capital funds of 6% of budgeted General Fund revenues •Adopt an annual budget that includes a chargeback by the IT Internal Service Fund •The transfer of all remaining innovation funds to the Technology Investment Capital Fund Proposal (cont.) City Council Policy No. 74 –General Fund Reserve Policy At the discretion of the City Council, reserve levels in excess of the 40% target requirement, may be used for one-time opportunity cost purposes or to fund the city’s expected long-term capital needs. Not recommended by the City Council Policy Update ad hoc subcommittee Proposal (cont.) City Council Policy No. 87 –General Fund Surplus Policy Any remaining surplus funds in excess of reserve deficiency, pension liability deficiencies, and after carry forward decisions have been made, may be brought forward for City Council approval to fund the city’s long-term capital funds, as defined in City Council Policy No. 90, Long-term General Fund Capital Funding Policy. Not recommended by the City Council Policy Update ad hoc subcommittee Recommended Action •Establish a new City Council policy to formalize the options to provide funding for the long-term capital needs of the city •Approve the transfer of funds from the General Fund’s Innovation Fund to the new Technology Investment Capital Fund in fiscal year 2021-22 Questions & Discussion 9 City Council Policy Update for the Long- term Capital Asset Needs of the City 10 Backup 11 12 Historical IRF & GCC Transfers Fiscal year Infrastructure Replacement Fund transfer General Capital Construction Fund transfer Total CIP transfers General Fund revenues % of General Fund revenues 2004-05 $3,830,000 $ -$3,830,000 $102,261,720 4% 2005-06 4,250,000 -4,250,000 106,874,290 4% 2006-07 7,200,000 -7,200,000 123,169,918 6% 2007-08 7,900,000 -7,900,000 119,935,977 7% 2008-09 7,800,000 -7,800,000 115,775,128 7% 2009-10 6,538,000 -6,538,000 117,934,154 6% 2010-11 7,175,000 -7,175,000 117,500,901 6% 2011-12 7,382,000 -7,382,000 116,450,179 6% 2012-13 7,547,000 -7,547,000 124,208,853 6% 2013-14 7,800,000 -7,800,000 128,323,991 6% 2014-15 8,302,000 -8,302,000 143,545,025 6% 2015-16 8,952,000 -8,952,000 147,948,784 6% 2016-17 9,460,000 10,500,000 19,960,000 153,669,106 13% 2017-18 9,970,000 -9,970,000 160,941,561 6% 2018-19 10,681,000 -10,681,000 175,708,746 6% 2019-20 5,111,500 5,111,500 10,223,000 171,382,610 6% 2020-21 4,500,000 4,500,000 9,000,000 159,315,392 6% 2021-22 5,353,0001 5,353,000 10,706,000 178,813,062 6% 13 General Capital Construction Fund - 10,000,000 20,000,000 30,000,000 40,000,000 50,000,000 60,000,000 70,000,000 80,000,000 Committed Available Balance 14 Infrastructure Replacement Fund - 20,000,000 40,000,000 60,000,000 80,000,000 100,000,000 120,000,000 140,000,000 Committed Available Balance