HomeMy Public PortalAbout14) 9B Budget Reserve Fund BalanceDATE: May 15, 2012
AGENDA
ITEM 9. B.
ADMINISTRATIVE SERVICES DEPARTMENT
MEMORANDUM
TO: The Honorable City Council
FROM: Jose E. Pulido, City Mana r
By: Tracey L. Hause, Adminis ative Services Director
SUBJECT: INTRODUCTION OF ORDINANCE NO. 12 — 953, AN ORDINANCE
ADDING A NEW CHAPTER 10 "BUDGET RESERVE FUND BALANCE
REQUIREMENTS" TO TITLE 2 "ADMINISTRATION" OF THE TEMPLE
CITY MUNICIPAL CODE
RECOMMENDATION:
The City Council is requested to review the proposed Ordinance and hold a first reading of
and schedule a second reading of an Ordinance of the City Council of the City of Temple
City, California, adding a new Chapter 10 "Budget Reserve Fund Balance Requirements"
to Title 2 "Administration" of the Temple City Municipal Code.
BACKGROUND:
In February 2009, the Government Accounting Standards Board issued Statement No.
54, "Fund Balance Reporting and Government Fund type Definitions" (GASB 54). The
Statement required governmental entities, like the City, to adhere to the reporting
requirements and adopt a policy implementing GASB 54 if they were to receive a
qualified or "clean" audit opinion.
2. On March 8, 2012, a special meeting was held in which among other items, a Budget
Reserve Policy was presented by staff. Budget reserve options were provided for
Council's consideration containing minimum and maximum targets for reserve funds
and identifying how such funds should be classified for GASB 54 reporting purposes.
The City Council was requested to provide direction regarding funding amounts for
each category and classification. Council concurred to refer this item to the City
Council Budget Ad Hoc Committee to meet with staff and return to the City Council with
a recommendation.
3. Between March 8�' and May 1st, staff met with the members of the City Council Budget
Ad Hoc Committee (i.e., Mayor Yu and Council member Blum) on a number of
occasions and discussed the elements for General Fund Reserves. Classifications
and minimum and maximum ranges were thoroughly vetted with the City Council
Budget Ad Hoc Committee members. For ease of administration and for accounting
City Council
May 15, 2012
Page 2
and reporting purposes of this reserve policy, it was suggested by staff, and the City
Council Budget Ad Hoc Committee members concurred, that one reserve level or
dollar amount be brought forward for approval by the City Council.
4. On April 17, 2012, the City Council received and filed the Comprehensive Annual
Financial Report (CAFR) at June 30, 2011, and fund balances were reported and
classified in accordance with GASB 54, as a formal policy had yet to be adopted by the
City.
5. On May 1, 2012, the City Attorney and Administrative Services Director recommended
to the City Manager, that for ease of clarity, the adoption of the GASB 54 Fund Balance
Policy and the Budget Reserve Fund Balance requirements to be adopted by
Ordinance (as recommended by the City Council Budget Ad Hoc Committee), should
be considered separately as each proposed action has a different objective.
The GASB 54 is a fund balance classification and financial reporting mandate only and
is recommended to be adopted by policy only. The Budget Reserve Fund Balance
requirements address how General Fund Reserves can and cannot be spent and the
requirements for the Reserves should be adopted by Ordinance. Further the proposed
Budget Reserve Fund Balance Requirements is intended for the General Fund only
and GASB 54 must address all funds.
6. On May 4, 2012, staff met with the City Council Budget Ad Hoc Committee (i.e., Mayor
Yu and Council member Blum) to discuss the merits of separating the GASB 54 Fund
Balance Policy and the Budget Reserve Fund Balance requirements. The City Council
Budget Ad Hoc Committee concurred with staffs recommendation.
ANALYSIS:
The City Council desires to establish various budgeted reserve fund accounts that will
allow for the funding of emergencies, contingencies, and liabilities and planned major
capital projects. The goal is to maintain adequate financial reserves so that in times of
economic downturns and annual revenue fluctuations, the City can continue to provide
essential city services to meet expenditure obligations.
The dollar amount of General Fund recommended reserves, the criteria for each
Reserve and the GASB 54 Classification is documented in Attachment "A". It is
proposed that Budget Fund Balance Reserves be established for:
• Emergency/Disasters at $1,000,000;
• Liquidity at $2,000,000; and
• Local Economic Uncertainty at $500,000.
It is recommended these Reserves established by Ordinance (Attachment "B") as
proposed. This approach is suggested so that any changes in these Reserves will
require an adoption of a new Ordinance with a first and second reading, eliminating the
City Council
May 15, 2012
Page 3
ability to change the reserve levels without careful consideration and a 4/51h affirmative
vote of the City Council.
The recommended reserve for Other Postemployment Benefits (OPEB) will be part of
the annual budget process and it is anticipated that an amount will be earmarked in
each proposed fiscal year budget to reduce the liability of the postemployment benefits
estimated at $9,142,000. At the June 19, 2012, City Council meeting, staff will
recommend that the City Council allocate $1,000,000 OPEB Trust Fund which will
include a recommendation for the Public Agency Retirement Services (PARS) to
administer the Trust Fund.
The remaining recommended Reserves are as follows:
• Fleet Management at $400,000;
• Facilities Management at $4,000,000;
• Technology Replacement at $200,000;
• Economic Development at $8,000,000; and
• Opportunities for One -Time Expenditures at $4,600,000.
These reserve levels will be reviewed on an annual basis (or more often if necessary)
as part of the City Budget process and recommendations for changes in these reserves
will come from the City Manager to the City Council to the City Council.
CONCLUSION:
In order to meet the City Council's objective of developing and implementing
comprehensive budgeted reserves for fund balances, it is recommended the City Council
adopt the attached Ordinance, stipulating minimum amounts for Emergency/Disasters,
Liquidity and Local Economic Uncertainty. The adoption of an Ordinance is a best
practice to ensure budgeted reserve levels cannot be changed without a thoughtful
process and 4/5 vote by the City Council. Further, in order to enable long-term planning
for replacement of the fleet, facilities, technology, economic development and one-time
expenditures, recommended reserve levels shall be an on-going part of the annual budget
process.
FISCAL IMPACT:
This action does not have an impact on the Fiscal Year (FY) 2011-12 City Budget.
City Council
May 15, 2012
Page 4
ATTACHMENTS;
A. General Fund Reco,ii,utd,ided Reserves — FY 2012-13
B. Ordinance No. 12 — 953, An Ordinance of the City Council of the City of Temple City,
California, Adding a New Chapter 10 "Budget Reserve Fund Balance Requirements"
to Title 2 "Administration" of the Temple City Municipal Code
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Attachment "B"
ORDINANCE NO. 12-953
AN ORDINANCE OF THE CITY COUNCIL OF THE CITY
OF TEMPLE CITY, CALIFORNIA, ADDING A NEW
CHAPTER 10 "BUDGET RESERVE FUND BALANCE
REQUIREMENTS" TO TITLE 2 "ADMINISTRATION" OF
THE TEMPLE CITY MUNICIPAL CODE.
WHEREAS, to ensure adequate fiscal resources and stable delivery of City
services during emergencies, fiscal emergencies , annual revenue fluctuation,
liquidity shortages, or severe economic downturns, the City desires to establish a
General Fund reserve requirements, and;
WHEREAS, to ensure fiscal prudence and responsibility the City
desires to also establish criteria for use of General Fund reserves; and
WHEREAS, the City desires to adopt these requirements and criteria
by Ordinance and codify its provisions in the City of Temple City Municipal
Code.
NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF TEMPLE
CITY HEREBY ORDAINS AS FOLLOWS:
SECTION 1. Addition of Chapter 10 to Title 2 of the Temple City Municipal
Code. The City Council hereby adds a new Chapter 10 " Budget Reserve Fund
Balance Requirements ) to Title 2 "Administration" of the Temple City Municipal Code,
which shall read as follows:
Chapter 10
BUDGET RESERVE FUND BALANCE REQUIREMENTS
2550: PURPOSE
2560: DEFINITIONS
2570: BUDGET RESERVE FUND BALANCE TARGETS
2550: PURPOSE
The primary purpose of this Chapter is to ensure adequate fiscal resources and stable
delivery of City services during emergencies, fiscal emergencies, annual revenue
fluctuations, liquidity shortages, or severe economic downturns so that in the event of
these occurrences the City is able to continue providing essential city services and
satisfying expenditure obligation. The secondary purpose of this Chapter is to enable
realistic long-term planning, assist in development of annual budgets, require the
prudent use of resources, and to implement of sound fiscal management practices. To
achieve these purposes, this Chapter requires the City to:
1. Establish adequate reserves.
2. Establish sound fiscal reserve requirements.
3. Ensure the City satisfies its short-term and long-term financial obligations.
4. Establish a periodic review of the City's fund balances and reserves.
5. Enhance the City's credit rating.
To achieve the purposes of this Chapter it is contemplated that the City will establish
various Budget Reserve Fund Balance accounts facilitating funding of emergencies,
contingencies, liabilities and planned major capital projects. .
2560: DEFINITIONS
For the purposes of this Chapter 10, the following terms shall have the following
meanings:
(a) "Emergency" shall mean, in accordance with Section 2701, the actual
or threatened existence of conditions of disaster or of extreme peril to the safety
of persons and property within the city caused by such conditions as air pollution,
fire, flood, storm, epidemic, riot or earthquake, or other conditions, including
conditions resulting from a labor controversy, which conditions are or are likely to
be beyond the control of the services, personnel, equipment and facilities of the
city, requiring the combined forces of other political subdivisions to combat.
(b) "Fiscal Emergency" shall mean the occurrence of any one or more of the
following:
(1) the existence of a default on a debt obligation for more than thirty days,
or the reasonable probability that the City will default on a debt obligation,
or that the City will not be able to cure a default on a debt obligation within
thirty days;
(2) the existence of a failure for lack of funds to make payment of all
payroll to officials, officers, or employees of the municipal corporation for
more than one payment cycled ;
(3) the existence of a condition in which accounts due and payable at
the end of the preceding fiscal year, less the year-end balance, exceeded
one -twelfth of the available revenues during the preceding fiscal year;
(4) the existence of a condition in which the aggregate of deficit amounts
of all deficit funds at the end of the preceding fiscal year, less the year-end
balance, exceeded one -twelfth of the total of the general fund budget for
that year and the receipts to those deficit funds other than from transfers
from the general fund;
(5) the existence of a condition in which, at the end of the preceding fiscal
year, moneys and marketable investments in or held for the unsegregated
treasury of the municipal corporation, minus outstanding checks and
warrants, were less than the aggregate of the positive balances of the
general fund and those special funds whose purposes the unsegregated
treasury meets, and such deficiency exceeded one -twelfth of the total
amount received into the unsegregated treasury during the preceding
fiscal year.
(c) "Economic Stabilization Reserve" shall mean, as provided in GASB 54
(Governmental Accounting Standards Board), an identified fund for which the
specified purpose is stabilizing the delivery of city services during periods of
operational deficits resulting from deferral of federal, state, or county remittance
and which may also be used as a short-term bridge from unexpected and drastic
downturns in the economy. Pursuant to GASB 54 stabilization is regarded as a
specified purpose only if the circumstances or conditions that signal the need for
stabilization (a) are identified in sufficient detail and (b) are not expected to occur
routinely.
2570: MINIMUM BUDGET RESERVE FUND BALANCE
The City will maintain combined General Fund reserves as follows:
(a) Emergency/Disaster Reserve - $1,000,000.
(1) Use of these funds is allowable only when the following conditions
have been met: (i) The City Council has declared the existence of either
an "Emergency" or "Fiscal Emergency"; and (ii) The use of the reserve
has been approved by 415f� vote of the membership of the City Council.
(2) Within 6 months after the Council's determination in paragraph (1)
above the City Manager shall present a plan to the City Council to
replenish this fund over a two-year period.
(3) If all or a portion of the
restored to the original level
whenever reasonably possible.
(b) Liquidity Reserve - $2,000,000.
Reserve is utilized, the Reserve will be
as adopted within the next five years or
(1) Funds are to be set-aside to provide cash flow for timing of revenues
and expenditures. For example, while payroll costs are bi-weekly and
fairly predictable, state and county tax payments can vary. The City may
also from time to time have major projects that are grant funded on a
reimbursement basis that require large cash outlays. A "Liquidity
Reserve" is established to provide the cash -on -hand needed in between
large revenue payments and grant reimbursements and will alleviate the
need for short-term borrowing.
(2) If all or a portion of the Reserve is utilized, the Reserve will be
restored to the original level as adopted within the next five years or
whenever reasonably possible.
(c) Local Economic Uncertainty Reserve - $500,000
(1) Funds are to be set aside for the purpose of stabilizing the delivery of
City services during periods of operational budget deficits resulting from
the conditions as described in the definition above "Economic Stabilization
Reserve.
(2) Use of the funds are allowable only when the City Council, upon the
415th vote of its membership, has approved the use of the fund.
(3) If all or a portion of the Reserve is utilized, the Reserve will be restored
to the original level as adopted within the next five years or whenever
reasonably possible
(d) Other Reserve Designations. The City Council may at any time
designate specific fund balance levels for future development of projects
which it has determined to be in the best long-term interests of the City.
(e) The City Manager must include a recommendation for the amounts to
be appointed to these reserves during the annual budget process.
SECTION 2. Severability. The City Council hereby declares that, should any
provision, section, subsection, paragraph, sentence, clause, phrase, or word of this
Ordinance or any part thereof, be rendered or declared invalid or unconstitutional by any
final court action in a court of competent jurisdiction or by reason of any preemptive
legislation, such decision or action shall not affect the validity of the remaining section or
portions of the Ordinance or part thereof. The City Council hereby declares that it would
have independently adopted the remaining provisions, sections, subsections, paragraphs,
sentences, clauses, phrases, or words of this Ordinance irrespective of the fact that any
one or more provisions, sections, subsections, paragraphs, sentences, clauses, phrases,
or words may be declared invalid or unconstitutional.
SECTION 3. Publication. The City Clerk shall certify to the passage and
adoption of this Ordinance and to its approval by the Mayor and shall cause the same to
be published according to law.
PASSED, APPROVED, AND ADOPTED this 15th day of May 2012.
ATTEST:
City Clerk
MAYOR
APPROVED AS TO FORM:
City Attorney
I, Mary Flandrick, City Clerk of the City of Temple City, hereby certify that the foregoing
Ordinance No. 12-953 was introduced at the regular meeting of the City Council of the City
of Temple City held on the day of 2012, and was duly passed, approved and
adopted by said Council at the regular meeting held on 2012 by the following
vote:
AYES:
NOES:
ABSENT:
City Clerk